Statement of Cash Flows

Question 1

fill in the blanks:

Over time, cash _____ must exceed cash _____ to ensure an entity remains a _____

Answer 1

inflows
outflow
going concern

Question 2

what does going concern mean

Answer 2

the entity will survive into the foreseeable future

Question 3

why does profit != cash

Answer 3

time and speed of cash inflows depends on terms of trade

aim to receive cash from sales before paid out for expenses

Question 4

what is cash and cash equivalents made up of

Answer 4

cash in hand

cash in bank and current accounts

Question 5

what notice term is needed for cash in accounts to be classified as cash equivalents by the IASB

Answer 5

90 days

Question 6

what are the uses of the statement of cash flows

Answer 6

asses how quickly profits are turned into cash

evaluate cash flow management

evaluate financial position

determine actual cash generated and spent

Question 7

does the cash flow statement follow the accruals basis of accountgin

Answer 7

no

only cash paid and received are presented in the statement

Question 8

what are the 3 sections of the cash flow statment

Answer 8

operating activities
investing activities
financing activities

Question 9

what is included in the cash flows from operating activities

Answer 9

cash made and spent in the day to day operations

taxes

Question 10

what adjustments should be made in the operating activities to ensure only cash is represented

Answer 10

ADD back income tax expense

ADJUST for changes in inventories
ADJUST for changes in receivables
ADJUST for changes in payables

ADD back depreciation costs (non cash payment)

Question 11

what is included in the cash flows from investing activities

Answer 11

cash paid out to buy new property, plant and equipment, acquisition of investments

cash coming in from selling of equipment, or dividends paid TO the entity, interest received

Question 12

what is included in cash flows from financing activities

Answer 12

outflows:

• payment of dividends
• loan interest pad
• loan repayments

inflows:

• shares issued
• new borrowings

Question 13

how to find the net increase (or decrease) in cash and cash equivalents over the period

Answer 13

cash flows from operating activities
\+ or -
cash flows from investing activities
\+ or -
cash flows from financing activities

Question 14

two methods of representing the statement of cash flows

Answer 14

direct and indirect method

Question 15

what is involved in the direct method

Answer 15

almost like a bank statement, includes every expense and cash received

Question 16

what is the indirect method

Answer 16

Relies on the fact, that sooner or later, sales revenue gives rise to cash inflows and expenses give rise to outflows.

Question 17

what are the non cash transactions in the statement of profit or loss

Answer 17

depreciation of non current assets

amortization of intangible assets

losses on disposal of non current assets

profits on disposal of non current assets

Question 18

if there is an increase in inventories, does this result in an inflow, or outflow of cash

Answer 18

outflow

Question 19

if there is a decrease in inventories, is this an inflow or outlfow of cash

Answer 19

inflow

Question 20

if there is an increase in TPs, accruals or other short term liabilities, is this an inflow or outflow of cash

Answer 20

inflow

Question 21

if there is an decrease in TRs or prepayments is this an inflow or outflow of cash

Answer 21

outflow as paid off