Topic 4 - Statement of Cash Flow

Question 1

Cash Flow from Operating Activities (11)

Answer 1

Profit/Loss from Operations
\+ Deprecation
\+ Loss/- Profit on Disposal
\+ Decrease/- Increase in inventory
\+ Decrease/- Increase in Trade Receivables
\+ Increase/ - Decrease in Trade Payables
- Dividend Received
= Cash flow from Operating Activities
- Intrest Paid
- Tax Paid (last year's)
= Net Cash Flow from Operating Activities

Question 2

Cash Flow from Investing Activities (5)

Answer 2

\+ Disposals/- Acquisition of Non-current Assets
\+ Disposals/- Acquisition  of Investment
\+ Intrest Received
\+ Dividends Received
= Cash flow from Investing Activities

Question 3

Cash Flow from Financing Activities (7)

Answer 3

+ Inflows from financing
- Outflows from redeeming finance
- Dividends Paid (last year’s final + this year’s interim)
= Cash from Financing Activities

= Net increase/decrease in cash for the period
+ Cash and cash equivalents at the start of the year
= Cash and cash equivalents at the end of the year

Question 4

Items that influence Profit but not Cash

Answer 4

Depreciation
Provision Doubtful debts
Inventory valuation
Revaluations

Question 5

Items that influence Cash but not Profit

Answer 5

Drawings
Acquisitions and disposals
Issue of shares

Question 6

Cash Equivalents

Answer 6

Short-term investments that are convertible into cash without notice

Question 7

The structure of the Income Statement

Answer 7

Revenue - Cost of Sales = Gross Profit - Overheads = Profit from Operations - Finance costs = Profit before Tax - Tax = Profit for the year

Question 8

Structure of a retained earnings account

Answer 8

Opening bal
Profit for the year
Transfer to general reserves
Dividend
Closing bal

Question 9

Tax Control account

Answer 9

CR: b/d (previous year balance sheet)
This year’s tax (notes)
new b/d (this year’s balance sheet)

DR: what has been paid (balancing figure)
c/d (this year’s balance sheet)

Question 10

Which tax to use

Answer 10

Calculating PFO use tax in notes

tax paid use the balancing figure

Question 11

Structure to answer a liquidity question

Answer 11

Transactions that affect profit e.g. loss on disposal

Transations that affect cash e.g. NCA purchases

Transcations that have an effect on both at different times e.g. Tax paid

Talk about the difference is cash and profit

Question 12

What is cash and how is it measured

Answer 12

Cash is notes and coins and is measured when it is actually received or paid

Question 13

What is profit and how is it measured

Answer 13

Profit is the surplus of revenue over costs of a business and is measured on a time related basis