Cash vs Profit Keywords and Questions Flashcards
Dividends
A share of profits and retained earnings that a company pays out to its shareholders and owners
Surplus
The amount of an asset or resource that exceeds the position that is actively utilised
Deficit
Occurs when expenses exceed revenues, imports exceed exports or liabilities exceed assets
Cash flow statement
Shows the movements of cash resources during a particular accounting period
What are the differences between cash and profit?
Cash
Actual money
Notes and coins in hand
Deposits in the bank or similar institutions accessible to the business on demand
Profit
Profit is a result of revenues minus expenses
What is the purpose of the statement of cash flow?
1) To predict future cash flows
2) Evaluate management decisions
3) Determine the ability to pay dividends to shareholders and payments to creditors
4) Show the relationship of net income to the business’ cash flow
When preparing a cash flow statement what are the operating activities?
The activities involved in earning revenues
When preparing a cash flow statement what are the investing activities?
Changes in non-current assets and investments.
Purchase of fixed assets
Sales of non-current assets
When preparing a cash flow statement what are the financing activities?
Changes in non-current liabilities and equity
Issuance of equity
Payment of dividends
Capital. financial lease payments
How do you setup a statement of cash flow?
‘Company name’
Statement of cash flow
‘For the year ended xxxx’
Cash flows from operating activities:
List of individual inflows and outflows
Net cash provided by operating activities
Cash flows from investing activities:
List of individual inflows and outflows
Net cash provided by investing activities
Cash flows from financing activities:
List of individual inflows and outflows
Net cash provided by financing activities
Net increase/decrease in cash
Cash balance at beginning of the period
Cash balance at the end of the period
What are the inflows that go into cash flows from operating activities?
Sales to customers
Interest received and dividends recieved
What are the outflows that go out of cash flows from operating activities?
Suppliers of merchandise and services
Employees
Lenders for interest
Governments for taxes
Interest and dividends paid
What are the inflows that go into cash flows from investing activities?
Selling investments and plant assets
Collecting of principal on loans
What are the outflows that go out of cash flows from investing activities?
Payments to acquire investments and plan assets
Purchase debt or equity investments
Make loans
What are the inflows that go into cash flows from financing activities?
Borrowing
Owners
What are the outflows that go out of cash flows from financing activities?
Repayments of borrowed funds
Owners for dividends
What are the elements of operating cash flows?
Current assets
Current liabilities
What are the elements of investing cash flows?
Long-term assets
What are the elements of financing cash flows?
Long-term liabilities
Owners’ equity
What are the three basic adjustments to operating activities with the indirect method?
1) Add back the depreciation expense
2) Add back losses and subtract gains associated with the sale of investment or property, plant and equipment
3) Adjust for changes in current liabilities and current assets associated with operations
What are the changes in current assets with the indirect method if there is an increase in the current asset?
Decrease in cash
What are the changes in current assets with the indirect method if there is an decrease in the current asset?
Increase in cash
What are the changes in current laibilites with the indirect method if there is an increase in the current liability?
Increase in cash
What are the changes in current liabilities with the indirect method if there is an increase in the current liability?
Decrease in cash
