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AS LEVEL ACCOUNTING

CHAPTER 24: Statement of Cash Flows


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

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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

- Disadvantages
o Ignores accruals and matching