Cash Flow Statement - Lecture 5b

Question 1

Accruals statement states

Answer 1

Profit IS NOT cash received - cash paid.

Profit IS: revenue earned - expenses incurred.

Question 2

Why is depreciation added back onto the profit figure?

Answer 2

The cash paid for depreciation is already included In the £30k paid for F&F.

Question 3

Why is an increase in receivables detrimental to the cash flow?

Answer 3

because every £1 worth of credit granted is a £1 of cash temporarily denied.

Question 4

Why is an increase in payables beneficial to cash flow?

Answer 4

because credit recieved from suppliers means cash it retained

Question 5

What is the financing element of cash flow?

Answer 5

New shares issued (beneficial to cash), loans received (beneficial to cash), and loans repaid (detrimental to cash)

Question 6

Why is an increase in prepayments detrimental to cash flow?

Answer 6

because paying in advance uses cash.

Question 7

Why is an increase in accruals beneficial to cash flow?

Answer 7

because building up inventory uses cash