Statement of Cashflows

Question 1

What kinds of transaction cause an inflow cash?

What kinds of transaction cause an outflow cash?

Answer 1

Inflow cash:
-A decrease in assets (other than cash)
-An increase in liabilities
-An increase in owner equity
Outflow cash:
-An increase in assets (other than cash)
-A decrease in liabilities
-A decrease in owner equity

Question 2

What is accounted as “Cash on hand”?

Answer 2

• Notes and coins held

- Deposits held at call with a bank or financial institution

Question 3

What is accounted as “Cash equivalents”?

Answer 3

There are two types:

1. Highly liquid investments: bank bills, non-bank bills, money market deposits
2. Borrowings: bank overdrafts, money market funds

Question 4

What information provided by statement of cash flow?

Answer 4

Information includes:

• Ability of the business to meet its debts
• Ability of the business to pay dividends
• Details of assets sold and purchased during the year, and the source of funds
• Details of amount of debt raised and repaid during the year
• Amount raised from issue of shares
• Total cash flows from different types of activities: operating, investing and financing

Question 5

Name some cash flow for Operating activities

Answer 5

Inflows:

• Sale of goods and service
• Dividends and interest on loans and investments

Outflows:

• Purchases of goods for resale and services (electricity, etc.)
• Wages paid to employee
• Taxes to government
• Interest paid to creditors

Question 6

Why there is a difference between cash flow and profit?

Answer 6

Net cash from operating activity related to, but not the same as profit.

• The statement of CF is based on movements in cash during the period.
• Profit measured on accrual basis – income and expense items may be recognised in different period to cash flow. (Revenues recognised when earned; expenses when incurred; not when cash is received or paid).

Question 7

Name some cash flow for Investing activities

Answer 7

Inflows - cash receive from:

• Sale or disposal of property, plant & equipment; other long term assets.
• Sale or maturity of investments in securities; collection of loans.

Outflows - cash paid to:

• Purchase of property, plant and equipment & other long term assets.
• Purchase long or short term securities; to make loans.

Question 8

Name some cash flow for Financing activities

Answer 8

Inflows - Cash received from:

• Issue of debt (eg debentures).
• Sale of shares.

Outflows - Cash paid to:

• Repay debt (excluding interest, which is an operating activity).
• Buy back shares.
• Pay dividends.

Question 9

Name some of Non-cash transitions

Answer 9

Non-cash transition in operating activities:

• Depreciation
• Bad debts (doubtful debts)
• Accruals (receivables, inventory, prepayments, payables, gains or losses on disposal of non-current assets)

Non-cash transition in investing & financing activities:

• Direct exchange of shares for assets
• exchange of non-current assets for reduction in debt

Question 10

What is Cash management?

Answer 10

It is the function whereby the entity:

• ensure accurate reporting of cash and cash flow
• ensure adequate cash available to meet commitments as they fall due
• invest idle cash to maximise return to entity