Statement Of Cashflows Flashcards
According to IAS what is the definition of cash?
comprises cash on hand and demand deposits.
According to IAS 7 what are cash equivalents?
short term highly liquid investments that are readily convertible to
known amounts of cash and are subject to an insignificant risk of changes in value
According to IAS 7 what is cashflow?
these are inflows and outflows of cash and cash equivalents.
According to IAS 7 what are Operating activities?
These are principal revenue producing activities of the entity and
activities that are not investing or financing activities
According to IAS 7 what are Investing activities?
These are the acquisition and disposal of long term assets and other
investments not included in cash equivalents.
According to IAS 7 what are financing activities?
These are activities that result in changes in the size and composition of
the equity capital and borrowings of the entity.
What is the cashflow statement?
This is a financial statement that tracks the cashflow of a business
Why is the statement of Cashflows important?
- To measure how well a company manages it’s cash position
- It helps creditors of a business to determine how much cash is available for the company to fund it’s operating expenses and pay down it’s debts
- It helps investors in making better, more informed decisions about their investments
According to IAS 7 what is the definition of cash
comprises cash on hand and demand deposits.
According to IAS 7 what are cash equivalents
short term highly liquid investments that are readily convertible to
known amounts of cash and are subject to an insignificant risk of changes in value
How do you adjust for Net Cashflow from Operating Activities?
- By working backwards, starting with EBIDTA.
- Adding back non-cash charges to EBIDTA such as Impairment, Depreciation, loss or profit on disposal of assets and provision for doubtful debts.
- Adjust for working capital
How and why do you adjust for working capital?
Looking at the increases or decreases I’m inventories, receivables and payables.
Adjusting for working capital is important because it affects the transactions that took place in operating the business since they fluctuate throughout the period.
State and describe the Method for reporting cashflow statements.
There are 2 methods, namely: Direct and Indirect.
The direct method focuses on tracking the actual cash receipts and payments.
The indirect method works backward, starting with EBIDTA to arrive at the net cashflow.
What are some of the adjustments under Financing activities?
- Issue and repurchase of shares
- Issue and redemption of debentures/bonds
- Repayment of loans
- Dividend payments
Why are interest payments not under Financing activities of the cashflow statement if Debentures and bonds are issued?
This is because interest payments are considered a cost of running the business, rather than a financing transaction; therefore they are recorded under operating activities.
However under IFRS, companies can choose to report interest payments under either operating or financing activities.
What are some of the adjustments under Investing activities?
- Disposal/Acquisition of assets
- Disposal of investments
How do you find the cash at the start of the period?
It is on the balance sheet, cash and cash equivalents from the previous year.
