Statement of Cash Flows Flashcards
what accounting standard deals with the statement of cash flows
IAS 7: Statement of Cash Flows
what does the statement of cash flows report
the flows of cash in and out of a business during an accounting period
allowing to draw attention to any cash problems
how are cash and profit different
profit is based on many estimations e.g. depreciation, allowance of doubtful debt
this makes profit malleable
cash cannot be manipulated
what is considered to be cash
cash on hand
cash in bank
bank overdraft = neg cash
what is considered to be cash equivalents
short term liquid investments eg treasury bills with less than one year maturity
(i.e. no risk of it changing value)
what are the three classes of activity identified in IAS 7: Statement of Cash Flows
Operating
Investing
Financing
what are operating activities
day to day activities that produce revenue for the entiity
what are investing activities
buying and selling of long term assets and investments
what are financing activities
related to changes in size and composition of equity and debt of the entity
examples of inflows of cash from operating activities
sale of goods or services
fees
examples of cash outflows from operating activities
paying suppliers
paying employees
paying taxes
examples of inflows from investing activities
selling ppe
selling intangibles
selling investments in other entities
repayment of loans from other entities
examples of cash outflows from investing activities
buying ppe
buying intangibles
buying investment in other entities
lending money to other entities
example of cash inflows from financing activities
issuing shares
issuing bonds
examples of cash outflows from financing activities
buy back shares
repay bonds
dividends paid
what are the two methods for cash flows
direct
indirect
how does the direct method work
receipts and payments accounting for individually
normally done by insiders, otherwise won’t have books of original entry
how does the indirect method work
begins at profit/loss before tax and adjustments made from there
which is the more popular method
indirect
do the indirect and direct method produce the same result
yes
what are some examples of non cash expenses
depreciation
loss on disposal
how are non cash expenses treated
added back
what are some examples of non cash income
decrease in allowance for doubtful debt
gains on disposal
how are non cash incomes treated
subtracted
what are the elements of adjustments for working capital
inventories
trade payables
trade receivables
accruals
prepayments
what are the disclosure requirements of IAS 7
disclose components of cash and cash equivalents and present reconciliation of these amounts in SOCF
also encouraged to supply:
- amount of any undrawn borrowing facilities
- analysis
how to treat depreciation
add back because non cash item
how to treat amortisation
add back because non cash item
how to treat interest expenses
add back because non operating
how to treat decrease in inventory
cash up because cash gained from sales
add
how to treat increase in inventory
cash down because money spent on purchases
subtract
how to treat decrease in trade receivables
add
cash up as credit from customers paid
how to treat increase in trade receivables
subtract
cash down as no cash made yet from sales
how to treat increase in trade payables
add
more loans not paid means no cash spent
how to treat decrease in trade payables
subtract
cash spent on repaying credir
are cash flows from operations usually positive or negative
positive
are cash flows from investments usually positive or negative
negative
