Statement Of Cash Flows

Question 1

Cash flow statement equation

Answer 1

Cash from operating activities 
\+ 
Cash from investing activities 
\+ 
Cash from financing activities 
\+ 
Cash at the start of the year 

=

Cash at the end of the year

Question 2

1) cash from operating activities

Answer 2

Net cash inflow/outflow from trading activities :

• cash receipts from customers less cash payments to suppliers
• less rent, wages and all other expenses paid

This is not the same as revenue and expenses in the profit and loss account :
Depreciation -  not a cash movement 
Revenue included in debtors 
Expenses in creditors 
Interest and tax paid

Question 3

Cash from operating activities steps

Answer 3

Start with the profit from operating activities before and adjust for :

1) items in the profit and loss account not involving the movement of cash
- add back dep for the year
- add back losses from sale of non current assets
- subtract profits from sale of non current assets

2) changes in inventory, TR/TP (comparing and closing balance sheets)

• add (subtract) a Decrease (increase) in closing inv
• add (subtract) a decrease (increase) in TR
• add (subtract) an increase (decrease) in TP

3)
Add back interest expense and subtract interest and tax paid (watch out for accruals)

Question 4

2) cash from investing activities

Answer 4

Shows cash flows from making new investments and disposing of existing ones :

-Cash payments to buy non current assets
-cash receipts on disposal of non current assets
-cash receipts from investors outside the company :
.interest received on loans
. Dividends received

Question 5

3 ) cash from financing activities

Answer 5

Cash flows that change the equity capital or long term borrowing

Share issues and redemptions

Changes in long term borrowing (issue or redemption of debentures )

Dividends paid