Chapter 3 - Statement of Cash Flows

Question 0

THE STATEMENT OF CASH FLOWS

Answer 0

STATEMENT OF CASH FLOWS FOR THE YEAR ENDED ……….

CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations
(Interest paid)
(Tax paid)

CASH FLOWS FROM INVESTING ACTIVITIES
   (Purchase of property, plant and equipment)
   Proceeds from sale of assets
   Interest received
   Dividends received

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from share issue
(Repayment of loan)
(Dividends paid)

NET CASH FLOW
CASH AT THE START OF THE PERIOD
CASH AT THE END OF THE PERIOD

Question 1

WHAT ARE THE BENEFITS OF A STATEMENT OF CASH FLOWS?

Answer 1

• They are FACTUAL; not influenced by accounting policies
• EASILY UNDERSTOOD; users can see how cash is raised and spent
• Provide extra information to businesses
• Allow user to asses future prospects of a business
• Shows how adaptable a business is
• Shows if a business can pay amounts as they fall due
• Facilitates comparison between companies

Question 2

THE DIRECT METHOD OF CALCULATING ‘CASH GENERATED FROM OPERATIONS’

Answer 2

ADD:
Cash sales
Cash received from credit customers

LESS:
Cash purchases
Cash paid to credit suppliers
Cash expenses

CASH GENERATED FROM OPERATIONS

Question 3

THE INDIRECT METHOD OF CALCULATING ‘CASH GENERATED FROM OPERATION’

Answer 3

Profit before tax
Finance cost
(Investment income)
Depreciation charge
Loss/ (profit) on disposals
(Increase)/ decrease in inventories
(Increase)/ decrease in trade receivables
Increase/ (decrease) in trade payables

CASH GENERATED FROM OPERATIONS