Statement of Cash Flows Flashcards
(31 cards)
What is the purpose of a Cash Flow Statement?
- show effect of company’s commercial transactions on its cash balance
- users can readily understand them unlike being misled by profit figure
- investment appraisal method
- allow management to control cash flow to maintain operating ability of company
How could a profit figure mislead different users of financial statements?
Shareholders- may assume that if profit made, dividend can be paid but there must be sufficient cash available to stay in business as well
Employees- if profit made, have ability to pay higher wages, depends on cash availability
What basis is the statement of cash flow compiled with?
Cash Basis
- only show items that have been physically received or paid for in year.
- not use accrual concept
What are the three sections of a stmt of Cash Flows
- Cash Flows from Operating Activities
- Cash Flows from investing Activities
- Cash Flows from Financing Activities
Cash Definition
comprises cash on hand and demand deposits
Cash Equivalents
short term, highly liquid investments that are readily convertible to known amounts of cash
- subject to insignificant risk of changes in value
- government bonds
Cash Flows Definition
Inflows and outflows of cash and cash equivalents
What is the pro forma for statement of cash flows for operating activities section with indirect method?
Profit before Tax
Adjustment for:
Depreciation/Amortisation
(Investment Income)
Interest Expense
Inc/Decrease for:
Trade and other receivables
Inventories
Trade Payables
Cash Generated from Operations
(Interest Paid)
(Income Taxes Paid)
Net Cash from Operating Activities
How is a inc/decrease in Receivables dealt with in cash flow stmt?
Increase from last yr- means money not been received so taken off
Decrease from last yr- means money been received so added on
How is a inc/decrease in lnventory dealt with in cash flow stmt?
Increase- means more cash tied up as stock- so take off profit
Decrease- means less cash tied up as stock- so add on to profit
How is a inc/decrease in Payables dealt with in cash flow stmt?
Increase- means have paid less so add to profit
decrease- means have paid more so take away from profit
What is the proforma for Investing Activities section of Cash Flow Stmt
Purchase of Property, Plant and Equipment
Proceeds from sale of equipment
Interest Received
Dividends Received
Net Cash used in Investing Activities
What is the proforma for Financing Activities section of Cash Flow Statement?
Proceeds from issue of share capital
Proceeds from long term borrowings
Dividends Paid
Net Cash used in Financing Activities
What is the summary section at the bottom of smt of Cash Flows
Net Increase in Cash and Cash Equivalents (sum of 3 sections totals)
Cash/Equivalents at begin of period
Cash/Equivalents at end of period
Direct Method of Cash Flow stmt
- major classes of gross cash receipts and payments are disclosed
Indirect Method to prepare cash flow stmt
reported profit or loss is adjusted for effects of transactions of non-cash nature
- any accruals/prepayments
What are the two different ways income taxes or Interest paid could be worked out?
- with T account filled in
balance b/f CR
balance c/f DR
Tax expenses CR
tax Paid DR- missing figure
b/f
+expenses
([Paid] )
—————-
c/f
What does the investing activities section of cash flow stmt represent?
relating acquisition or disposal of any non current assets/investments
- and returns received in cash from investments- dividends, interest
extent to which expenditures have been made for resources intended to generate future income/ cash flows
What is included in the financing activities section of cash flows stmt?
- receipts from/ repayments to external providers of finance in respect of principal amounts of finance
- issuing shares proceeds
- issuing debentures, loan notes, bonds, mortgages proceeds
- cash repayments of amounts borrowed
- dividends paid
How can missing figures within financing activities section be found?
- closing statement of financial figure debt/share capital/share premium
- compare with opening position for same items
How could dividends paid be worked out as a missing figure for stmt of cash flows?
Dividends Payable T account
- balance b/f CR
- balance c/f DR
- Dividends (Retained Earnings) CR
Dividends Paid Figure after balancing DR
What is a basic proforma for creating a movement of retained earnings?
Balance at end of previous period
Profit for year
Dividends
Balance at end of current period
What are the steps to deal with stmt of cash flows extended question?
- fill in total cash at begin and end of yr
- allows to figure out change- the answer!
- work through all the info given in order, ticking off
- check that all totals the change originally found
What is the proforma for operating activities for stmt of cash flows using direct method?
Cash Receipts from Customers
(Cash payments to suppliers and employees)
—————————
Cash generated from operations
(interest paid)
(income taxes paid)
——————————-
net cash from operating activities
