Chapter 6 Flashcards
Provides information about cash inflows & outflows during an accounting period
Statement of Cash Flow (PAS 7)
The net change in cash from the operating, investing & financing activities in a manner that reconciles the beginning and ending cash balances.
Statement of Cash flows
Valuable analytical tool for managers
Statement of Cash flows
Primary purpose of cash flow statement
provide relevant information about a company’s cash receipt & cash payments during an accounting period.
Consist of short-term, highly liquid investment (Treasury bills or money market funds)
Cash Equivalents
Key indicator of the extent to which the operation of the enterprise have generated sufficient cash flow
Operating activities
Include delivering or providing goods for sale and providing services
Operating activities
-Sales of goods
-Revenue from services
-Return on interest earning assets
-Returns on equity securities
-Tax refunds
Inflows from Operating Activities
-Payment for purchases of inventories
-Payments for operating expense
-Payment for purchases from supplies
-Payments for lenders and taxes
Outflows from Operating Activities
represent the extent to which expenditures have been made for resources intended to generate future income and cash flow
Investing activities
Include acquiring and selling
Investing activities
-Sales of long-lived assets (PPE)
-Sales of debt or equity
-Collections of loan to others
Inflows from Investing activities
-Acquisition of long-lived assets (PPE)
-Purchase of debt or equity
-Loan to others
Outflows from Investing activities
Useful in predicting claims on future cash flows by providers of capital to the enterprise
Financing activities
Include borrowing from creditors and repaying the principal
Financing activities
-Proceeds from borrowing
-Proceeds from issuing firm equity securities
Inflows from Financing activities
-Repayment of debt principal
-Repurchase of firm own share
-Payment of dividends
Outflows from Financing activities
Entity shall report cash flow from operating activities using either
- Direct Method, whereby gross cash receipt & gross cash payments are disclosed
- Indirect Method, whereby profit or loss is adjusted for the effects of transaction of a non-cash nature.
Enterprises are encouraged to report cash flow from operating activities using
Direct method
Net cash flow from operating activities is determined by adjusting the net profit or loss for the effects of changes during the period in inventories, non-cash items and all other items for which cash effects are investing or financing cash flow
Indirect method
Showing revenue and expense disclosed in the income statement and the changes during the period inventories and operating receivables and payables
Indirect Method
Cash flow arising from transactions in a foreign currency should be recorded
entity’s functional currency by applying the foreign currency amount
Cash flow from interest and dividends received and paid should
disclosed separately
Cash flows arising from taxes on income shall be
separately disclosed and classified as cash flow from operating activities unless they can be specifically identified
