20. The statement of cash flow

Question 1

statement of cash flow

Answer 1

importance of liquidity

Question 2

why does profit earned not equal the change in bank and cash balances

Answer 2

profit calculated on accruals

calculation of profit includes items that do not affect cash i.e. depreciation

bank and cash balances are affected by items that don’t affect profit i.e. repayment of loans

Question 3

presentation of the statement of cash flow

Answer 3

CASH FLOWS FROM OPERATING ACTIVITIES
\+
CASH FLOWS FROM INVESTING ACTIVITIES (non current assets)
\+ 
CASH FLOWS FROM FINANCING ACTIVITES

Net increase in cash and cash equivalents
Cash and cash equivalents bf
cash and cash equivalents cf

Question 4

CASH FLOWS FROM OPERATING ACTIVITIES

Answer 4

Cash generated from operations
- interest paid
- taxation paid
= net cash from operating activities

Question 5

CASH FLOWS FROM INVESTING ACTIVITIES (non current assets)

Answer 5

- Purchase of non current assets
\+ proceeds from sale of non current assets
\+ interest received
\+ dividends received
= net cash from investing activities

Question 6

CASH FLOWS FROM FINANCING ACTIVITES

Answer 6

\+ issue of shares
- loan repaid
\+ loan issued
- dividends paid
= net cash from financing equivalents

Question 7

Cash generated from operations

Answer 7

Indirect method

Profit before tax
\+ Depreciation for period
\+/- (profit) or loss on disposal of non current assets
\+ finance cost
- investment income
\+/- (increase)/ decrease in inventory
\+/- (increase)/ decrease in receivables
\+/- increase/ (decrease) in payables
= cash generated from operations

Question 8

cash flows from operating activities

Answer 8

need to calculate cash by deducting;
interest paid
tax paid

This is the sum that was actually paid or last year’s tax liability

Question 9

Tax/ Interest Liability T account

Answer 9

CR
Balance bd = opening accrual on SFP
Statement of profit of loss charge

DR
Balance CD
Cash = balancing figure to be used in the statement of cash flows

Question 10

Cash flows from investing activities (non current assets and other companies)

Answer 10

need to know
cost account
accumulated depreciation
disposals account

or use CV

Question 11

Cash flows from financing activities

Answer 11

loans increase = money in
loans decrease = money out
Dividends paid (declared) money out