15: The cash flow statement

Question 1

What is the purpose of a cash flow statement?

Answer 1

provides a link between profit in the PnL and changes in the asset and liabilities

Question 2

Who is required to complete a cash flow statement?

Answer 2

Although sole traders and partnerships can do cash flow statements, only companies are required to do so.

Question 3

What is the most common reason for business failure?

Answer 3

Lack of cash availability

Question 4

What are the three headings that breaks down a cash flow statement?

Answer 4

Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities

OIF

Question 5

List the cash flows from operating activities (10)

Answer 5

Profit before tax
Add: Depreciation expense
Add: Loss on fixed asset / Less: Profit on fixed asset
Add: Interest expense
Less: Dividend received
Add: Decrease in debtors / Less: Increase in debtors
Add: Decrease in stock / Less: Increase in stock
Add: Increase in creditors / Less: Decrease in creditors
Deduct: Interest paid
Deduct: Tax paid

Question 6

List the cash flows from investing activities

Answer 6

Proceeds from sale of fixed assets / investments
Purchases of long term assets / investments
Add: Dividend received
Add: Interest received

Question 7

List the cash flows from financing activities

Answer 7

Proceeds from issuing share capital
Less: Repayment of share capital
Proceeds from issuing debentures / increasing loans
Less: Repayment of debentures / loans
Less: Dividends paid

Basically:
Net share capital
Net debentures / loans
Less: Dividends paid