W1- Cash Flow Statement

Question 1

Why is the cash flow statement needed?

Answer 1

-Cash is necessary for survival
-Provides additional information on business activities
-Allows users to see major types of cash flows and to estimate future cash flows
-Enhances comparability/easier for users to understand

Question 2

Define Operating expenses

Answer 2

All the distribution/admin. cost of running the business includes annual depreciation of non-current assets, includes expenses not yet paid, and excludes prepayments.

Question 3

What is the format of a cash flow statement?

Answer 3

1. Cash flows from operating activities
2. +/- Cash flows from investing activities
3. +/- Cash flows from financing activities
4. +/- Net increase (or decrease) in cahs and cash equivalents over the period

Question 4

What are cash equivalents?

Answer 4

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificany risk of changes in value.

Question 5

What are the IAS7 operating activities?

Answer 5

-Principal revenue-producing activities of the entity and other activities that are not investing or financing activities
-i.e. trading receipts and payments, interest & tax paid

Question 6

What are AIS7 investing activities?

Answer 6

-The aquisition and disposal of long term assets and other invesments not included in cash equivelents
-i.e. cash paid for a new asset, cash received for selling an old asset

Question 7

What are IAS7 financing activities?

Answer 7

-Activities that result in changes in the size and composition of the equity capital and borrowings of an entity
-i.e., cash proceeds from share issue, repayment of loan capital

Question 8

What are the 2 methods of IAS7 preparation of the cash flow statement?

Answer 8

Direct & Indirect methods

Question 9

What is the IAS7 indirect method?

Answer 9

-Adjust operating profit to establish how much cash is being generated from operating activities
-Adjustments made include: depreciatipn, changes in working capital

Question 10

How to work out cash flow from operating activities?

Answer 10

1. Always add back the years depreciation expenses
2. Add or subtract the years increase/decrease in inventory, TR, prepayments, TP and accruals
3. Subtract the year’s tax, interest, and dividend cash payments

Question 11

Converting profit to cash

Answer 11

-Statmeent of Financial Position items: Use the difference between opening and closing values

Question 12

Curreny Asset rules

Answer 12

-Increase: (subtract)
-Decrease: (add)

Question 13

Current Liabilities rules

Answer 13

-Increase: (add)
-Decrease: (subtract)