Cash Flow Statement Financial Management Slide 12 Flashcards
How to calculate profit in cash flow statement
Revenue earned in a period minus costs incurred in earning that revenue
When do time lags occur cash flow statement
Payment for fixed assets, materials and services
Cash receipts for sales
Profit compared with cash flow
P- sales - expenses (costs and expenses associated with the sales)
CF- cash inflows - cash outflows
How are fixed assets accounted for in profit and loss account
By means of depreciation an expense known as depreciation is charged / deducted when calculating the profit
In cash flow statement how are fixed assets dealt with
Only in the year of purchase / year of sale
If a fixed asset is purchased it is recorded as a cash outflow and the sale of a fixed asset is recorded as a cash inflow
Why is depreciation never included in the cash flow statement
It is a non-cash transaction
Why prepare a cash flow statement
•Show the main source of funds for the year
•To show the purposes for which these funds were used
•To judge if the sources of funding matched the relevant uses
What is required to derive a cash flow statement from financial statements/accounts
•Profit and loss account for period
•balance sheet for the beginning and end of the accounting period
What is the first heading in cash flow statement
Net cash flow from operating / trading activities
Movements in working capital
What is included in net cash flow from operating / trading activities
Operating profit (Profit before interest and tax)
Depreciation
Other adjustments from profit and loss account
What is included in movements in working capital
Increase/decrease in stocks (inventory)
Increase / decrease debtors (a/c receivable)
Increase / decrease in creditors (a/c payable)
If there’s an increase in stocks (inventory) what does it mean for cash flow
It will be an outflow of funds
If there’s a decrease in stocks (inventory) what does it mean for cash flow
There’s an inflow of funds
If there’s an increase in creditors (a/c payable) what does it mean for cash flow
There’s an inflow of funds
If there’s a decrease in creditors (a/c payable) what does it mean for cash flow
There’s an outflow of funds
What is the second heading on a cash flow statement
Return on investment and servicing of finance
Are dividends recorded as cash outflow or cash inflow
Outflow
What is the third heading on a cash flow statement
Taxation period
What is 4th heading on a cash flow statement
Investing activities
Investment or purchases of fixed assets is this recorded as an outflow or inflow of cash
Outflow of cash
Sales of fixed assets is this recorded as a cash inflow or outflow
Cash inflow
How to calculate Investments in fixed assets
Fixed assets on the balance sheet at the end - fixed assets on the balance sheet at the beginning + depreciation from profit and loss
What is the fifth heading on a cash flow statement
Financing activities
How to calculate grants received
Grants on the balance sheet at the end - grants on the balance sheet at the beginning + amounted credited to income from profit and loss
How to calculate repayment of debenture (loans)
Difference between debenture at the beginning and end of period on balance sheet
Issue of shares or loans are these recorded as an inflow or outflow of cash
Inflow of cash
What is the 6th heading on a cash flow statement
Movement in net liquid funds
Example of net liquid funds
Bank overdraft
Cash
