Cash Flow Statement

Question 1

Benefits of preparing a cash flow statement

Answer 1

• Shows cash inflows & outflows for past year
• Shows profits don’t always =cash
• Aids financial planning
• Complies w/ legal requirements

Question 2

Cash Expenses

Answer 2

reduce profit and cash, e.g. wages

Question 3

Non-cash expenses

Answer 3

reduces profit only, e.g. depreciation

Question 4

Cash Gain

Answer 4

Increases profit and cash, e.g. interest received

Question 5

Non-cash gain

Answer 5

Increases profit only,e.g. profit in sale of a fixed asset

Question 6

Give examples of why profit does not always equal cash

Answer 6

Depreciation, profit on sale of fixed asset, cr sales / purchases, sale/purchase of fixed assets, capital, drawings.

Question 7

Accounting obligations of a large public company

Answer 7

• Provide full set of a/cs, cash flow statement and balance sheet at AGM
• Provide notes w/ a/cs
• Have a/cs audited
• File full set of a/cs and balance sheet w/ registrar of companies
• Present annual report to shareholders at AGM

Question 8

Responsibilities of director of a plc

Answer 8

• Comply w/ Companies Act: keep a/c records to enable financial statement
• Prep annual financial statements
• Select accounting policies
• Sign financial statements
• Safeguard assets of plc
• Publish Final a/cs and cash flow statement
• Present annual report to shareholders at AGM

Question 9

Accounting Standards Board

Answer 9

• Issue new standards called Financial Reporting Standards (FRS)
• Amend and withdraw old accounting standards

Question 10

Financial Reporting Standard (FRS) 1

Answer 10

Issued in 1991, revised in 1996, requires large companies to prepare a cash flow statement for each activity period