The Statement of Cashflows

Question 1

Cash

Answer 1

• Cash in hand (bank current account, overdraft, petty cash)

- Demand deposits (deposits which are payable on demand)

Question 2

Cash Equivalents

Answer 2

• Short term
• Highly liquid investments
• Readily convertible into known amounts of cash

Question 3

IAS 7

Answer 3

Statement of cashflows

• Provides us with guidelines for the presentation of the statement of cashflows
• Divided in three sections
• Operating activities (direct and indirect method) AAT exam uses indirect method
• Investing activities
• Financing activities

Question 4

Operating Activities

Answer 4

• Cashflows from the normal revenue producing activities of the business
• Can be calculated in 2 ways; Direct and indirect method

Question 5

Indirect Method

Answer 5

• More commonly used

- Net profit or loss is adjusted for non cash items and working capital adjustments

Question 6

Direct Method

Answer 6

• Shows actual cash receipts and payments from customers and to suppliers
• More difficult to prepare as information is not readily available

Question 7

Investing Activities

Answer 7

• Cashflows from the acquisition and disposal of non current assets
• And cash returns from investments
• (Dividends and interest)

Question 8

Financing Activities

Answer 8

• Cashflows which result in a change in the size and composition of the contributed equity (share capital)
• And borrowings of the entity