What are the different methods for producing a statement of cash flows?
- Direct method
- Indirect method
What are the parts of a cash flow statement?
- Cash from investing activities
- Cash from financing activities
- Cash from operating activities
Is repaying trade payables an example of operational or financing activities?
Operational
How does the direct method for cash flow statements work?
- Identify cashflows in accounting equation
- Sort into investing / financing / operating
What sort of cashflows is the direct method mostly used for?
Investing & financing
How does the indirect method for cash flow statements work?
Infer cashflows from income statements & SoFPs
What sort of cashflow is the indirect method mostly used for?
Operating
Why is the indirect method more suited to operating cashflows?
High volume of operating cashflows - too unwieldy to process directly
What type of activities are paying interest & dividends?
Technically financing, but typically classified as operating - IFRS allows either
How would investing cashflows be deduced from financial statements?
- Difference in tangible assets (SoFP)
- Difference in financial assets (SoFP)
- Interest / dividend income (income statement)
How would financing cashflows be deduced from financial statements?
- Difference in non-current liabilities (SoFP)
- Difference in equity (except retained profit & dividend payments) (SoFP)
