Cash Flow Statement

Question 1

What does the Cash Flow statement tell us about the business

Answer 1

• What cash the business is generating
• Summary of the movements of cash
• Shows inflows and outflows made during the reporting period and the total net cash flow of the business
• it helps ASSESS THE ABILITY OF THE BUSINESS TO MEET FINANCIAL COMMITMENTS when they fall due

Question 2

Explain the cash based transactions

Answer 2

Revenue is recognised when cash is received

Expenses are recognised when cash is paid

Question 3

Cash is important because?

Answer 3

It is usually the only way to settle claims with people or orgnanisations
- needed to pay wages, expenses, purchase assets etc.

Question 4

What are the three cash flow classifications

Answer 4

Operating
Investing
Financing

Question 5

What is the cash flow from operating activities

Answer 5

the revenue producing activities of the entity and other activities that are not investing or financing
INFLOWS
-Cash received from customers
- other incomes
OUTFLOWS
- Cash paid to suppliers (A Payable)
- Cash paid to employees (wages)
- Interest Paid
- Income Taxes Paid

Question 6

What is the cash flow from investing activities

Answer 6

Cash paid to acquire non current assets and receipts form disposal of non current assets
DO NOT SHOW PROFIT OR LOSS ON ASSETS, ONLY PROCEEDS FROM SALES

INFLOWS

• Proceeds from sale of assets
• Interest received from investments
• interest received from dividends

OUTFLOWS
- Purchase of assets

Question 7

What is cash flow from financing activities

Answer 7

Cash paid to borrowings, for finance from issuing shares

INFLOWS
- Issue of shares
- Increase in mortgage or long term loans
- issuing debentures 
(DOES NOT INCLUDE SHORT TERM LOANS)

OUTFLOWS

• Repayment of borrowings
• Payment of dividends
• Payments to redeem shares
• Purchase of convertible notes

Question 8

FORMAT OF CASH FLOW STATEMENT

Answer 8

CASH FLOW FROM OPERATING ACTIVITIES
- Inflows
- Outflows
NET CASH FLOW FROM OPERATING ACTIVITIES

CASH FLOW FROM INVESTING ACTIVITIES
- inflows
- outflows
NET CASH FLOW FROM INVESTING ACTIVITIES

CASH FLOW FROM FINANCING ACTIVITIES
- inflows
- outflows
NET CASH FLOW FROM FINANCING ACTIVITIES

INCREASE / DECREASE IN CASH

Opening cash balance
Closing Cash Balance
Increase / decrease in cash