Semester 2 Week 10 Tutorial 9

Question 1

Outline the difference between the cashflow per the statement of cashflows and the profit or loss per the statement of profit or loss.

Answer 1

The statement of cashflows, shows the cash in and out of the business in a set period of time whereas the statement of profit and loss is done on an accounting basis. This means that the profit and loss may be different from the cashflow due to timing differences (for example sales made on credit) and accounting adjustments (such as gains on sale or depreciation).

Question 2

Outline why cash is importance and the need for a statement of cashflows.

Answer 2

Cash is important as regardless of a business’s ability to make profit it still has to make payments in cash. The ability to generate cash is therefore extremely important. For this reason a statement of cashflows is required to allow users of the accounts to judge a business’s ability to generate cash, and understand how the business is using cash.

Question 3

Answer 3

Question 4

Answer 4

Question 5

Using the extracts from the statement of profit and loss, statement of financial position and associated notes prepare the operating activities section from the statement of cashflows using both the direct and indirect methods. You should ignore tax.

Answer 5

Working 1
Opening debtors 600
Revenue 67,500
-660
Cash received from customers 67,440

Working 2

Purchases = 1,080 + 48,450 - 1,320 = 48,210

Op payables 390
Purchases 48,210
Distribution costs 3,450
Admin expenses 10,200
Depreciation -1,800
Loss on sale -75
Closing payables -270

	60,105