CASH-FLOW STATEMENTS Flashcards
Reconciliation of operating profit to net cash flow from operating activities
Operating profit X
Add depreciation charges X
Less profit on disposal of fixed assets (X)
Add loss of disposal of fixed asset X
Add decrease in stock (Less increase) X
Add decrease in debtors (Less increase) X
Less decrease in creditors (Add increase) X
Add increase in bad debt provision (Less decrease) X
Add patents written off X
Net cash flow from operating activities: X
outflows of cash
purchase of stock / increase in debtors / payments to creditors
SUBTRACTED
inflows of cash
sale of stock / payments made by debtors / increase in creditors
ADDED
non-cash expenses
depreciation / loss on disposal / reduction in bad debt provision
ADDED
non-cash gain
profit on disposal / increase in bad debt provision
SUBTRACTED
Cashflow forecast for X for year ended 31/12/XX
OPERATING ACTIVITIES
Net cash flow from operating activities X
RETURN ON INVESTMENT AND SERVICING OF FINANCE
Interest received X
Interest paid (X)
Preference dividend paid (X)
Dividends received X (X)
TAXATION Tax paid (X)
CAPITAL EXPENDITURE & FINANCIAL INVESTMENT
Payments to acquire fixed assets (X)
Receipts from sale of fixed assets X
Payments to acquire investments (X)
Receipts from sale of investments X (X)
EQUITY DIVIDEND PAID
Ordinary dividends paid (X)
NET CASH INFLOW BEFORE LIQUID RESOURCES AND FINANCING (X)
MANAGEMENT OF LIQUID RESOURCES
Purchases of government securities <1yr (X)
Sale of government securities <1yr X
Payments into current asset investments (X)
Withdrawal from current asset investments X X
FINANCING
Receipts from issue of shares X
Receipts from share premium X
Payment of debentures / loan (X)
Receipts from issue of debentures / loan X X
INCREASE / DECREASE OF CASH X
Reconciliation of movement in cash to movement in net debt
INCREASE / DECREASE X
cash used to increase liquid resources X
cash used to repay debentures X
Change in net debt X
Net debt 01/01/XX (X)
NET DEBT 31/12/XX (X)
abridged profit and loss account for year ended 31/12/xx
OPERATING PROFIT X Interest for the year (X) PROFIT BEFORE TAXATION X Taxation for the year (X) PROFIT AFTER TAXATION X Dividends - interim X Proposed X (X) RETAINED PROFITS FOR THE YEAR X Retained profits on 01/01 X Retained profits on 31/12 X
why profits do not always mean a corresponding increase in cash
- credit sales effect profit but do not effect cash.
- non-cash losses and gains effect profit but not cash.
- purchase and sale of fixed assets by cash effect cash but not profit.
- introduction or withdrawal of capital in cash effect cash but not profit.
why are cash flow statements prepared
- to show the cash inflows and outflows during the past year.
- to help predict future cash flows
- to help financial planning.
- to provide information to assess liquidity.
- to show that profits do not equal cash.
- to comply with legal requirements.
Accounting standards board
The Accounting Standards Board issues new accounting standards called Financial Reporting Standards (FRS). It also amends and withdraws old accounting standards.
FRS1, which was issued by the ASB in 1991 and revised in 1996 requires large companies to prepare a Cash-Flow Statement for each activity period.
It requires that individual cash flows should be entered under standard headings according to the activity that gives rise to them.
responsibilities of the director of a plc.
- to comply with the Companies Acts.
- to keep proper accounting records enabling financial statements to be prepared.
- prepare annual financial statements.
- select suitable accounting policies.
- sign financial statements.
- safeguard the assets of the company.
- publish final accounts and cash flow statements atleast once a year.
- present an annual report to shareholders at AGM to include; directors’ report, auditors’ report, financial statements.
accounting obligations of a plc
- provide a full set of accounts, balance sheet and a cash flow statement to shareholders at AGM.
- file/register a full set of accounts and balance sheet with the registrar of companies.
- provide explanatory notes to these accounts.
- must have its accounts audited.
- they must also present an annual report to the company shareholders at its AGM to include: a directors report, an auditors report and financial statements.
the reasons why XX plc, who has an operating profit of $XXXXXXX, has generated a greater net cash inflow from operating activities.
XX plc has generated $$ more cash inflow during the year because:
- depreciation XXX and loss on sale of machinery XXX reduce profit but had no affect on cash inflow.
- an increase in creditors during the year increases cash inflow by XXX but has nil affect on profit.
- the increase in debtors and stock during the year of XX and XX respectively also contributed to a reduction in net cash inflow but have no effect on profits.
explain decline in companys cash balance in 20xX
- purchase of fixed assets reduced cash by x but did not reduce profit.
- purchase of government securities reduced cash by X but did not reduce profit.
- payment of dividends X and tax X reduced cash by XX but did not reduce profit.
- increase in stock, debtors and decrease in creditors reduced cash by XX but didnt reduce profit.
