Q1. What is Statement of Cash Flows? - A financial statement that shows cash inflows and outflows (cash and cash equivalents) of a business over a period of time. Q2. What accounting standard is applied in the preparation of Statement of Cash flows? - IAS 7
Q3. What is the end result of cash flow statement?
• CASH AND CASH EQUIVALENTS – ending balances
Q4. What is cash and cash equivalents?
Cash is money in notes and coins and deposit is that are repayable on demand Cash equivalents are short-term investments that are convertible into cash without notice. They have less than 3 months to run when acquired
Q5. IAS 7, Statement of cash flows is presented as follows: STANDARD FORMAT
Company Ltd / Plc
Standard headings: Statement of Cash Flows for the year ended DD-MM-YYY
Cash flows from operating activities
Operating Operating profit Depreciation charges for year XX XX Profit on disposal of PPE (XX) Loss on disposal of PPE XX Increase in inventories (XX) Decrease in inventories XX Increase in trade receivables (XX) Decrease in trade receivables XX Increase in trade payables XX Decrease in trade payables (XX) Cash (used in) / from operating activities XX Interest paid (XX) Income tax paid (XX) Net cash (used in) / from operating activities XX Investing Cash flows from investing activities Purchases of non-current assets (XX) Proceeds from sale of non-current assets XX Purchases of investments (XX) Cash (used in) / from investing activities XX Cash flows from financing activities Proceeds from share issue XX
Financing Repayment of debenture
Dividends paid (XX) (XX) Cash (used in) / from financing activities XX Net increase/ (decrease) in cash and cash equivalents XX Cash and cash equivalents at the beginning of year XX Cash and cash equivalents at the end of year XX
1 AS LEVEL ACCOUNTING
Q6. Importance (Uses) of Statement of Cash Flows
- CONCENTRATE – concentrate on cash inflows and outflows
- REVEAL – reveals information that is not disclosed in the income statements - ASSESS – assess the how cash is being used (efficiency), liquidity, viability and financial adaptability of the company - PLANNING – assist in the projection of future cash flows / helps in planning.
Q7. Advantages and Disadvantages
- Advantages o Shows the movement of cash – important for business survival o Easier for non-accountants o Easier for creditors to assess the liquidity of the business o Backs up income statement and SFP