week 3

Question 1

difference between profit and cash

Answer 1

profit doesn’t always give a useful or meaning picture of a business’s operations.

Question 2

accuracy of statement of profit or loss

Answer 2

profit or loss reports total sales and purchases for the year. however if goods are sold or purchased on credit, the cash receipts and payments will be different to the sales and purchases reported in statement of profit or loss.

Question 3

functions of statement of cash flows

Answer 3

-shows all cash coming in and all cash going out under 3 standard headings so users can identify any major movement of cash
-helps users to predict what cash flows will be like in the future
-allows users to assess the quality of the profit showing in the statement of profit or loss

Question 4

3 subheadings of cash flow

Answer 4

-cash flows from operating activities- everyday trade
-cash flows from investing activities- buying and selling assets, interest and dividends
-cash flows from financing activities- raising money and paying back

Question 5

cash generated from operations needs to cover

Answer 5

interest paid
tax paid
dividends paid