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19 Cards in this Set
- Front
- Back
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Why do we need a Cash Flow Statement since we already have balance sheet and P&L statements
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Because the BS and P&L do not measure accomplishment, effort and the flow of resources in terms of Cash
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So what does the Cash Flow Statement provide
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It provides a reconciliation between profits (from P&L) and Cash (CFS)
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What Accounting conventions does the CFS unravel
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1) Accruals - goods on credit
2) Allocation - depreciation |
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Why is the profit figure used from P&L as the starting point for CFS, if the CFS is used to unravel accounting conventions - profit uses accruals and allocation convention
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Becuase ajustments are made
i.e depreciation and bad debts added back in, decrease in creditors taken away etc |
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What are the sources of cash - incoming cash
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1) Profits (+ or - adjustments)
2) increase creditors 3) Decrease debtors 4) Decrease in inventory 5) Loans 6) introduction of capital 7) Sale of fixed Asset |
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What are sources of cash leaving
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1) Loss from profits (+ or - adjustments)
2) Load Payments 3) increase in debtors 4) increase in inventory 5) decrease in creditors 6) Purchase of fixed assets |
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what are the eight categories of Cash-flow in CFS
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1) Operating activities
2) Return on investments and Servicing finance 3) Taxation 4) Capital investments 5) Disposal and acquisitions 6)Equity Dividends payments to shareholders 7) Management of liquid Resources 8) Finance |
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What do we mean by Operating Capital
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Profit (+or - Adjustments) + increases or decrease in the following
1) Inventories 2) Creditors 3) Debtors |
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What types of cash-flow could be in "returns on investments and Servicing Finance
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Investment gains and payments to non-equity shareholders
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What types of Cash-flow could be in capital investment
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buying or selling plant, equipment or property
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What type of cash-flow items could be in "Disposal and Acquisitions
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Cash-flows arising from buying and selling JV, subsidiarity
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What cash-flows can come from management of liquid resources
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selling of securities
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What cash-flows come from financing
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movement of debt and shareholder funds
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what do you need to remember when reconciling the cash flow statement as regards assets sold during the year
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the cost of these assets will not be in the Balance sheet because this is only a snap shot of beginning of period and end
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if you sold 145000 of PPE during the year for 66,00 what would you need to do in the cashflow statement
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1) add back the 79 loss that would be in the P&L
2) Add 145000 to fixed assets purchased during the year |
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what distraction do yoiu need to make with operating activits cashflow and other areas of cash flow statement
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Operating activities add back accounting activities and adjustments for flow of cash
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Why is depreciation added back to profits on cash flow
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because depreciation understates the profit value and no cash actually leaves the company, its only an allocation in P&L
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Why is provisions for bad debt added back
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because these provisions understate the profits actually achieved and the cash in the company.
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If you have sold as asset what do you need to enter in the capital expenditure section of CFS
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1) Difference between balance sheet period NBV, add back NBV of sales and Depreciation
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