Ch 12

Question 1

Why prepare a cash flow statement?

Answer 1

The net cash generated by the trading operations of the business
The cash available to meet obligations to liabilities
The long-term debt arrangements of the business
The cash used to fund new non-current assets

Question 2

Classifications in the cash flow statement

Answer 2

Operating activities
Investing activities
Financing activities

Question 3

Operating activities

Answer 3

Cash sales
Collections of cash from accounts receivable
GST collected in cash
Payments to accounts payable
Payments of expenses
GST paid
GST settlements

Question 4

Investing activities

Answer 4

Sales and Purchases of Non-Current Asset 
Purchase of equipment
Purchase of vehicles
Sale of shop fittings
Sale of computers

Question 5

Financing activities

Answer 5

Capital injections of cash by the owner
Drawings of cash by the owner
Taking out loans
Making loan repayments

Question 6

Evaluation of cash flows

Answer 6

Management should compare cash flows from one year to the next to reveal both problem areas and improvements achieved by the business.

Cash flows from operating activities is a key figure in relation to cash flows as the business usually needs to generate its own cash so that assets can be replaced and liabilities settled.

If a business is running low on cash, or has suffered a large decrease in their cash reserves, the cash flow statement can be used to identify the causes of the cash shortage.