Chapter 16

Question 1

Cash flow statement

Answer 1

an accounting report that reports all cash flows during a reporting period, classified as Operating, Investing and Financing activities.

Question 2

Operating activities

Answer 2

cash flows related to day- to-day trading activities

Question 3

Investing activities

Answer 3

cash flows related to the purchase and sale of non- current assets

Question 4

Financing activities

Answer 4

cash flows related to changes in the nancial structure of the firm

Question 5

4 financing activities

Answer 5

Capital contribution
Loan - ANZ
Drawings
Loan Repayments

Question 6

2 investing activities

Answer 6

Sale of non current asset

Purchase of non current asset

Question 7

1 operating activity

Answer 7

Interest on loan

Question 8

15 headings of cash flow statement

Answer 8

CASH FLOW FROM OPERATING ACTIVITIES
Cash Inflows
Less cash outflows
Net Cash Flows from Operations
CASH FLOW FROM INVESTING ACTIVITIES
Cash Inflows
Less cash outflows
Net Cash Flows from Investing Activities
CASH FLOW FROM FINANCING ACTIVITIES
Cash Inflows
Less cash outflows
Net Cash Flows from Financing Activities
Net Increase (Decrease) in Cash Position
Bank balance at start
Bank balance at end

Question 9

Cash flow statement v statement of receipts and payments

Answer 9

Although the Statement of Receipts and Payments can assist the owner in managing cash, it is somewhat limited in its uses, because it only classi es the cash transactions as receipts or payments. Information about cash is more useful for decision-making if it classi es common sources and uses of cash, and separately identi es their effect on the bank balance. For this reason, the owner may wish to prepare a Cash Flow Statement to report on cash in ows (cash received) and cash out ows (cash paid), separately identifying cash ows relating to Operating activities, Investing activities, and Financing activities.

Question 10

4 benefits of a cash flow statement

Answer 10

Aid decision making
assess targets
Assist in planning
Identify cash generation

Question 11

Aid decision making

Answer 11

To aid decision-making about the rm’s cash activities by detailing the sources and uses of cash in a particular period.

Question 12

Assess targets

Answer 12

To assess whether the business is meeting its cash targets by comparing the Cash Flow Statement against budgeted (or expected) cash ows. This will highlight problems and allow for corrective action to be taken.

Question 13

Assist planning

Answer 13

To assist in planning for future cash activities by providing a basis for the next budgeted Cash Flow Statement, which will set targets for the future.

Question 14

Identify cash generation

Answer 14

To identify whether the business is generating enough cash from its Operating activities to fund its Investing and Financing activities.

Question 15

Cash v profit

Answer 15

The simple answer is that cash and pro t are different resources, and business owners need to understand this difference in order to manage both effectively. The change in a rm’s cash (or bank balance) is calculated by comparing cash in ows and cash out ows in a reporting period, whereas pro t is determined by comparing revenues earned and expenses incurred in a particular reporting period. As we have seen a number of times, these items are not necessarily the same:

Question 16

Net cash flow

Answer 16

Net cash flow refers to the difference between a company’s cash inflows and outflows in a given period.