SOCF Flashcards
1
Q
Cash And Cash Equivalent:
A
These are short-term(current assets/current liabilities), highly liquid
investments which can be easily/readily converted into cash of known amount. Also risk of change in their
value is insignificant. It includes following:
1. Cash at Bank
2. Cash at Hand
3. Short-Term Investments
2
Q
Increase in Prepaid Expenses
Increase in accrued expenses
Increase in accrued income
Increase in prepaid income
A
Increase in Prepaid Expenses is cash outflow
Increase in accrued expenses is cash inflow
Increase in accrued income is cash outflow
Increase in prepaid income(other payables) is cash inflow
3
Q
Advantages Of Statement Of Cash Flows:
A
- superior to accrual which is based on Estimations while Cash Flow Statement is prepared on cash basis .Thus revenues and expenses will not be overstated
- It might help in preparation of cash budgets.
- Requirement of IAS 7
- Comparisons of liquidity past ind avg
- Shows whether business has raised more internal financing or external financing.
4
Q
Disadvantages Of Statement Of Cash Flows:
A
- It does not show profit or loss only cash position as it is one of the objectives of business.
- Accuracy of statement of cash flows depends upon statement of financial position
- It ignores matching concept thus revenues and expenses might be understated.
- it can be manipulated by delaying
payment to supplier and other expenses. - fails to account for future.
5
Q
Statement Of Cash Flows VS Cash Budget:
A
- SOCF It is prepared based on current transactions CB It is prepared based on future estimates
- It is prepared as per IAS7
It is prepared as per company’s policy - It is published for investors
It is prepared for internal management’s decision making. It is not published - It is prepared on an annual basis
It is prepared as per company’s convenience such
as monthly, quarterly or yearly - It shows past or current liquidity position
It is used to assess surplus or deficit.
