Principles of Accounting

Cash flow statements

Danny Leiwy

Subject Guide Ch 11
L&P: Chapter 6
 Cash Flow Statements: IAS7
uses
cash in/ cash out
direct/indirect methods

interpretation

Cash flow statements 2

 Uses

Statement of financial position

Income statement
Cash flow statement

Cash flow statements 3

 Ques6ons

How much cash was generated?

How was it spent?
Sources of finance?
non-current asset investments?
Movement on cash balances?
Cash flow statements 4
 Cash in/ Cash out
In +
Increases in liabilities
Decreases in assets
Out -
Increases in assets
Decreases in liabilities
5
Cash flow statements
 Indirect method
1.Operations
2.Investment
3.Financing
4. = Change in cash
5. + Opening cash balance
6. = Closing cash balance

Cash flow statements 6

 Opera6ons
Profit before taxation
+ depreciation
+ interest expense
+ loss on sale of non-current assets
- profit on sale of non-current assets
- increase in inventory
- increase in trade receivables
+ increase in trade payables
= Cash generated from operations 7
Cash flow statements
 Opera6ons (contd)

Cash generated from operations

- interest paid
- taxation paid
- dividend paid
= Net cash flow from operating activities

Cash flow statements 8

 Tax/interest paid
b/f (opening current liabilities)
+ expense for year (in income
statement)
- c/f (closing current liabilities)
= tax (or interest) paid

Cash flow statements 9

Purchases of non-current assets
Opening balance
- disposal
- depreciation expenses
+ revaluation
+ purchases (ie x, the unknown)
= closing balance
Cash flow statements 10
 Uses of Cash Flow Statement
quality of profits
ie relationship between profit and cash
cash flows from different activities and their
relative significance
borrow long to invest long?
operating activities financing interest, tax
and dividends?
predictive purposes: 3 to 5 year time period
Cash flow statements 11