Statement Of Cash Flows Flashcards
Net cash flow
Cash received less all cash paid out
Arguably most important for going concern?
Cash flow
Benefits of statements of cash flows
- Factual/objective (no policies or estimates)
- Easily understood
Cash flow statement uses
- Extra info
- Assess future prospects
- Assess adaptability
- Check amounts can be paid as due
- Comparison (though standard headings)
Statement of cash flows format
Cash flows from operating activities
Cash generated from operations
Interest paid
Income taxes paid
Net cash from operating activities
Cash flows from investing activities
Purchase of PPE
Proceeds of sale of equipment
Interest received
Dividends received
Net cash used in investing activities
Cash flows from financing activities
Proceeds of issue of shares
Repayment of loans.
Dividends paid
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
Cash and cash equivalents at the end of the period
Cash definition
Cash in hand and deposits available on demand
Cash equivalents definition
Liquid assets with a maturity date less than 3 months in the future
Which figure on the SFP reconciles to the change in cash and cash equivalents?
Difference between b/f and c/f cash figure kn SFP
What is a bank overdraft treated as in the SCF
A negative cash balance
2 methods of calculating cash generated from operations
- Direct method
- Indirect method
Direct method for calculating cash from operations
Cash sales
+ cash received from credit customers
- cash purchases
- cash paid to credit suppliers
- cash expenses
Which method does IAS 7 prefer for calculating operating cash flows?
Direct method
Indirect method for calculating cash from operations
Profit before tax
+ finance costs
- investment income
+ depreciation charge
+/- loss/profit on disposal of non-current assets
+ amortisation charge
-/+ increase/decrease in inventories
-/+ increase/decrease in trade receivables
+- increase/decrease in trade payables
Indirect method adjustment: Finance cost
Added back to profit because not part of cash from operations and may include accrued (I.e. non-cash) amounts
Indirect method adjustment: investment income
Deducted as not part of cash from operations (belongs to cash flows from investing activities)
Indirect method adjustment: depreciation/amortisation
Added back because not a cash item
Indirect method adjustment: Disposal
Added back because non-cash items
Indirect method adjustment: Decrease in inventories
Added on because decrease in inventories liberates extra cash
Indirect method adjustment: increase in trade receivables
Deducted because this income not yet realised as cash
Indirect method adjustment: decrease in trade payables
Deducted because reduction in payable’s must reduce cash. Must have paid suppliers if you owe less.
Other cash outflows from operating activities may include
- Interest paid
- Income taxes paid
Calculaton of interest/income taxes paid
- Charge to profits (P&L)
- Opening/closing payable balance (BS)
Investing activities cash inflows may include
- Interest received
- Dividends received
- Proceeds of sales of equipment
Investing activities cash outflows may include
Purchase of PPE
Calculation of interest and dividends received
- Income receivable (P&L)
- Any relevant opening+closing receivables (BS)
Calculating purchase of PPE and Proceeds of sale of equipment: Accounts required
- Cost
- Accumulated depreciation
- Disposals
What to do if there is insufficient detail to produce separate cost and accumulated depreciation accounts
Use a carrying amount account
PPE carrying amount
PPE carrying amount calculation
b/f amount
+ additions
- disposals at CA
- depreciation charge for year
=c/f amount
(Remove any non cash additions to this figure)
Financing activities: cash inflows may include
- Proceeds of issues of shares
- Proceeds of issue of loans/debentures
Financing activities: cash outflows may include
- Repayments of loans/debentures
- Dividends paid
Calculation of proceeds of issue of shares
Compare b/f and c/f on:
- Share capital
- Share premium
Calculation of proceeds of issue of loans/repayments of loans
Subtracting b/f balance from c/f balance
Calculation of dividends paid
Use a retained earnings account
Ordinary dividends are accounted for when paid and irredeemable preference dividends are paid on an accruals basis
