The cash flow statement

Question 1

What does the statement of cashflows show?

Answer 1

Summarises all movements of cash into and out of a business

Question 2

What is the importance of cash?

Answer 2

Pay people, dividend, repay debts, purchase assets

Question 3

What is cash equivalent?

Answer 3

Short term, high liquid assets that can be quickly turned into cash (within 3 months)
e.g Current accounts, short term investments, gov bonds

Question 4

What should a cashflow statement look like?

Answer 4

Cash flows (operating)
Cash flows (investing)
Cash flows (financing)
= Net increase/ decrease in cash
Opening cash d/m/y
Closing cash d/m/y
= Net increase/decrease in cash

Question 5

What is operating activities?

Answer 5

Money from regular activities - main revenue
e.g) Sales, Trading activities suppliers, em
Inflows
- Sale of good, interest recieved

Outflow
- Suppliers, taxes, lenders

Question 6

What is investing activites?

Answer 6

Investments, that provide future economic benefit
Inflows - sale of property, sale of investments in equity
Outflows - purchases above, loans

Question 7

What is Financing activities?

Answer 7

Funding a business like raising capital and paying investors
e.g inflow - sale of ordinary shares,
outflow - shareholders as dividends,

Question 8

What are the methods of operating activities

Answer 8

Direct method
Indirect method

Question 9

What is the direct method of operating activity

Answer 9

Using inflow and outflows directly from operations
- using the cash basis, cash from sale

Question 10

What is the indirect method of operating activty

Answer 10

Starts from net profit (from income statement) then adjust all non cash transactions for overall

Question 11

what are the steps for indirect method of operating activites?

Answer 11

1. Start with Net income
2. cancel Non-cash transactions like depreciations
3. Changes in working capital (current assets - current liabilities)
4. Other cash paid during year (interest, tax)

Question 12

How to work out changes in working capital?

Answer 12

Current assets - current liabilites

Question 13

How should depreciation expenses be labelled

Answer 13

as a plus, as it doesnt reduce cash

Question 14

Where is a loss on sale put into operating sections

Answer 14

Added in net income

Question 15

Where is a gain on sale but into operating sections

Answer 15

Deducted from net income

Question 16

Where are the proceeds of equipment shown

Answer 16

In investing activites

Question 17

Where is taxes paid on cash flow statement?

Answer 17

Operating activites