5. The Statement Of Cash Flows Flashcards
What are the three sections of the statement of cash flow?
1) Operating activities
2) Investing activities
3) Financing activities
What are the operating activities?
Cash flows from the normal revenue producing activities of the business
What are the two methods of operating activities?
Indirect method and direct method is
What is the indirect method?
Net profit/loss adjusted for non Chase items and working capital adjustments
What it the direct method?
Shows actual cash receipts and payments from customers/suppliers. It is difficult to prepare as information is not readily available.
What are investing activities?
Cash flows from acquisition and disposal of non current assets and cash returns from investments.
What are financing activities?
Cash flows resulting in a change in the size and composition of the contributed equity and borrowings of the entity.
What are the steps to the indirect method for preparing operating cash flow adjustments?
- Non-cash items
- Items that are dealt with elsewhere
- Working capital movements
How do you adjust for non-cash items in the operating cash flow?
Depreciation - Add
Amortisation - Add
Profit on disposal of NCA - Deduct
Loss on disposal of NCA - Add
How do you deal with ‘items dealt with elsewhere’ when preparing operating cash flows?
Review SOPL and additional information given in the assessment and identify items which have been included in profit from operations but form parts of investing finance activities: Other Income (from investments)
How do you deal with working capital when preparing operating cash flows?
Prepared on an accruals basis so profit from operations will include income and expenses, but cash when it is paid/received. Increases or decreases are adjusted by removing the accruals treatment.
Where is tax and interest paid deducted from in the cash flow?
Cash generated for operations.
What is the calculation for taxation?
Bal b/f X
Tax charged X
Cash paid. (X)
Bal c/f. X
What is the calculation for interest payable?
Bal b/f. X
Interest expense X
Cash paid. (X)
Bal c/f. X
What are items in investing activities?
Cash paid out for non-current asset purchases
Cash proceeds received from the sale of non-current assets
