Bsns107 - Cash Flow Statement

Front 1

What type of accounting does the cash flow statement use?

Back 1

Cash accounting

Front 2

If the accrual is created by a cash transaction, then what must happen?

Back 2

It must be reversed by a non-cash transaction

Front 3

Purpose of a cash flow statement?

Back 3

- to identify the sources and uses of cash during the year
- to highlight the material operating, financing and investing activities of the entity during a financial period

Front 4

Why is cash flow data important?

Back 4

As it is highly reliable and less subject to estimation/manipulation than accrual accounting

Front 5

Cash flows

Back 5

inflows and outflows of cash and cash equivalents

Front 6

Cash Equivalents

Back 6

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

Front 7

What does each transaction involve?

Back 7

- A movement of cash
- An external entity/party (i.e. someone to pay cash to/to receive cash from)

Front 8

________ and ___________ are used in day-to-day cash management.

Back 8

Cash and highly liquid investments

Front 9

What are examples of cash and highly liquid investments?

Back 9

Notes, coins, demand deposits

Front 10

What else does cash include?

Back 10

Borrowings (at call) used int he day-to-day cash management
e.g. bank overdraft

Front 11

Are AR and AP included?

Back 11

NO

Front 12

Why is cash important?

Back 12

Because organisations and people will not normally accept any other form of settlement of claim against the business

Front 13

Why do businesses fail?

Back 13

As a result of an inability to find sufficient cash to settle their responsibilities

Front 14

Bankruptcy

Back 14

When Equity (A-L) becomes negative because liabilities exceed assets and the entity is not in a position to use assets to pay off liabilities

Front 15

Legal bankruptcy

Back 15

Bankruptcy from an accounting point of view

Front 16

Default on liabilities

Back 16

When you do not have enough cash to pay a current liability even though you have lots of assets

Front 17

You can be in ___________ without actually being _____________

Back 17

default, bankrupt

Front 18

Cash is....

Back 18

the pre-eminent business asset and therefore the one that analysts and others watch carefully in assessing survivability of the business

Front 19

Balance Sheet

Back 19

- static report made at a given point in time
- based on balances in assets, liabilities and OE
- normally based on accrual transactions

Front 20

Income Statement

Back 20

- measures the financial performance over a period of time (normally a year)
- related to revenues earned less expenses incurred

Front 21

Cash Flow Statement (differences)

Back 21

- identifies all cash receipts and cash payments for the period
- based on cash, not accrual, transactions
- incorporates all account types
--> Has operations generated more cash than was spent

Front 22

What does the cash flow statement help users to do?

Back 22

- Assess the ability of the business to generate cash flows
- Assess the financial performance and financial position of the entity
- Assess where the entity has spent cash and received cash from
- Ass the entity's ability to generate further cash flow

Front 23

What does the cash flow statement explain?

Back 23

The changes in the cash balances between two balance dates (i.e. it explains changes in cash between start and end of financial period)