Statement of Cash Flows

Question 1

what accounting standard deals with the statement of cash flows

Answer 1

IAS 7: Statement of Cash Flows

Question 2

what does the statement of cash flows report

Answer 2

the flows of cash in and out of a business during an accounting period

allowing to draw attention to any cash problems

Question 3

how are cash and profit different

Answer 3

profit is based on many estimations e.g. depreciation, allowance of doubtful debt

this makes profit malleable

cash cannot be manipulated

Question 4

what is considered to be cash

Answer 4

cash on hand
cash in bank
bank overdraft = neg cash

Question 5

what is considered to be cash equivalents

Answer 5

short term liquid investments eg treasury bills with less than one year maturity

(i.e. no risk of it changing value)

Question 6

what are the three classes of activity identified in IAS 7: Statement of Cash Flows

Answer 6

Operating
Investing
Financing

Question 7

what are operating activities

Answer 7

day to day activities that produce revenue for the entiity

Question 8

what are investing activities

Answer 8

buying and selling of long term assets and investments

Question 9

what are financing activities

Answer 9

related to changes in size and composition of equity and debt of the entity

Question 10

examples of inflows of cash from operating activities

Answer 10

sale of goods or services

fees

Question 11

examples of cash outflows from operating activities

Answer 11

paying suppliers

paying employees

paying taxes

Question 12

examples of inflows from investing activities

Answer 12

selling ppe
selling intangibles
selling investments in other entities
repayment of loans from other entities

Question 13

examples of cash outflows from investing activities

Answer 13

buying ppe
buying intangibles
buying investment in other entities
lending money to other entities

Question 14

example of cash inflows from financing activities

Answer 14

issuing shares
issuing bonds

Question 15

examples of cash outflows from financing activities

Answer 15

buy back shares
repay bonds
dividends paid

Question 16

what are the two methods for cash flows

Answer 16

direct
indirect

Question 17

how does the direct method work

Answer 17

receipts and payments accounting for individually

normally done by insiders, otherwise won’t have books of original entry

Question 18

how does the indirect method work

Answer 18

begins at profit/loss before tax and adjustments made from there

Question 19

which is the more popular method

Answer 19

indirect

Question 20

do the indirect and direct method produce the same result

Answer 20

yes

Question 21

what are some examples of non cash expenses

Answer 21

depreciation
loss on disposal

Question 22

how are non cash expenses treated

Answer 22

added back

Question 23

what are some examples of non cash income

Answer 23

decrease in allowance for doubtful debt
gains on disposal

Question 24

how are non cash incomes treated

Answer 24

subtracted

Question 25

what are the elements of adjustments for working capital

Answer 25

inventories trade payables trade receivables accruals prepayments

Question 26

what are the disclosure requirements of IAS 7

Answer 26

disclose components of cash and cash equivalents and present reconciliation of these amounts in SOCF also encouraged to supply: - amount of any undrawn borrowing facilities - analysis

Question 27

how to treat depreciation

Answer 27

add back because non cash item

Question 28

how to treat amortisation

Answer 28

add back because non cash item

Question 29

how to treat interest expenses

Answer 29

add back because non operating

Question 30

how to treat decrease in inventory

Answer 30

cash up because cash gained from sales add

Question 31

how to treat increase in inventory

Answer 31

cash down because money spent on purchases subtract

Question 32

how to treat decrease in trade receivables

Answer 32

add cash up as credit from customers paid

Question 33

how to treat increase in trade receivables

Answer 33

subtract cash down as no cash made yet from sales

Question 34

how to treat increase in trade payables

Answer 34

add more loans not paid means no cash spent

Question 35

how to treat decrease in trade payables

Answer 35

subtract cash spent on repaying credir

Question 36

are cash flows from operations usually positive or negative

Answer 36

positive

Question 37

are cash flows from investments usually positive or negative

Answer 37

negative