IAS 7 Theory Flashcards
WHat can cash flow do which other statements can’t?
Where the cash has been spent
What should operating cash inflow be?
Similar to operating profit to prove business can cover day-to-day expenses just by operating in a normal way
Delaying payments to suppliers?
Losing out on settlement discounts, impacting profitability
If cash flows are increasing year on year?
Business is witholding payments to fund other areas of business
What are cash flows not affected by comparted to other FSs?
Accounting policies and estimates
What must be profit be compared to?
The cash flows to determine if paying employees more is actually affordable
If a company has a significant cash increase but this was donet hrough selling and borrowing?
Not good, company may struggle to continue as growing concern
Cause for operating profit being a lot higher than operating cash flow?
Issues over the working capital cycle (time takes to recover money from operations)
Increase in inventories and a decrease in trade receivables?1
Sales are on decline as more inventory is held
Risk for an increase in inventory?
There’s a risk in obsolescence
Risk for development expenditure?
Make sure this is legitimate development expenditure and not research costs
Risk of costs not being correctly capitalised under IAS 38?
Understated expenses and therefore an overstated profit
