Statements of Cash Flow

Question 1

Why is it needed?

Answer 1

• shows money received and spent during period
• supplement info. provided on IS and BS
• measures cash position of business
• IS reveals profitability BUT NOT necessarily good liquidity

Question 2

Why is Cash Flow important?

Answer 2

• identifies sources of cash inflows within period
• summarise why businesses cash balance changes from $X to $Y

Question 3

What are the 3 sections divided into?

Answer 3

• Operating = normal day-day activities
• Investing = acquisition and disposal of NON-CURRENT assets
• Financing = changes in NON-CURRENT liabilities and equity

Question 4

What are some short term strategies to improve Cash Flow

Answer 4

• Reduce current assets
• Increase current liabilities –> delay payments

Question 5

What are some long term strategies to improve Cash Flow

Answer 5

• Increase equity financing e.g. injection of capital from owner
• Increase long-term liabilities
• Reduce spending on non-current assets