Presentation is loading. Please wait.

Presentation is loading. Please wait.

Statement of Cash Flows

Similar presentations


Presentation on theme: "Statement of Cash Flows"— Presentation transcript:

1 Statement of Cash Flows
--Part 1

2 Overview Purpose of the statements of cash flows
Classification of cash flows Preparation of Statement of Cash Flows

3 Terminology Cash? Cash Flow? Cash on Hand Demand Deposits
Cash Equivalents: short-term, highly liquid investments. Cash Flow? Cash flows are inflows and outflows of cash and cash equivalents.

4 The purpose of the Statement of Cash Flows
The Statement of Cash Flows provides information about cash receipts, cash payments and the net change in cash It helps to answer the following questions: Where has the entity spent the cash? Where did it receive cash from during the period? What has been the change in the cash balances? What can the entity generate in terms of future cash flow?

5 Cash Sources (Inflows) Uses (Outflows) 1.Receive Revenue
1.Pay Expenses Operating Activities 2.Sale of long-term assets 2.Purchse of long term assets Investing Activities 3.Investment by the owners 3.Withdraw by the owners/Dividends 4.Long-term borrowing 4.Repayment of long-term debts Financing Activities

6 Classification of Cash Flows
Cash flows from operating activities Cash flows arising from providing goods and services and that are not classified as financing or investing activities (NZ IAS 7.6). The cash flows generally arise from transactions affecting the Income Statement. Examples include: Cash receipts from the sale of goods and services, the payment to suppliers for goods and services, payment to employees (wages).

7 Classification of Cash Flows
Cash flows from investing activities Cash flows arising from the purchase and sale of long-term assets and other investments (not included in cash equivalents) (NZ IAS 7.6.). Examples include: cash receipt (payments) from the sale (purchase) of property plant and equipment.

8 Classification of Cash Flows
Cash flows from financing activities Cash flows arising from the activities relating to owners contributed equity and borrowings. (NZ IAS 7.6). Examples include: Cash received from obtaining a loan ; Cash paid to repayment of a loan; Obtaining cash from shareholders; Paying dividends.

9 Operating / Investing / Financing
Exercise For each of the following transactions indicate: (a) in the first column if the transaction is a receipt or payment of cash, and (b) in the second column, classify the cash transaction as operating, investing or financing. Transaction Receipt / Payment Operating / Investing / Financing Wages paid Received interest Advertising expense paid Paid dividends Cash sales Paid commission Interest paid on loan Increased loan Issued shares for cash Sold goods on credit Paid for shop fittings Owner took goods for own use Paid creditors Cash purchases Credit purchases Owner invested cash Sold delivery van Loss on sale of delivery van Credit sales Received payment on account Bad debts Depreciation expense Cash drawings

10 Classification of interest , dividends paid and received
Interest paid can be classified as cash outflow from operating activities because it is included in the determination of the income statement OR it can be treated as financing cash flows because interest is a cost of obtaining funds ( NZIAS 7. 33). Interest and dividends received can be classified as cash inflow from operating activities because they are included in the determination of the income statement OR they can be treated as cash inflow from investing activities because they are returns on investments ( NZIAS 7. 33). Dividends paid can be treated as cash outflows from financing activities because they are party of the cost of obtaining funds for the business. However, IAS 7.34 also allows dividends paid to be classified as operating cash flows as they enable users to assess the ability of the entity to pay dividends out of cash flows from operations.

11 Classification of interest , dividends paid and received
Interest paid and received – operating activities Dividends received – operating activities Dividend paid – financing activities

12 Format of Cash Flow Statement
Cash flow from operating activities Cash receipts Cash payments Net cash flow from operating activities Cash flow from investing activities Net cash flow from investing activities Cash flow from financing activities Net cash flow from financing activities Net increases (decrease) in cash Cash at beginning of period Cash at end of period

13 Preparation of Cash Flow Statement
Information required A balance sheet for two consecutive accounting periods so that changes in asset, liability and equity accounts can be identified. The income statement covered between the two balance sheet periods Additional data relating to particular transactions.

14 The steps to undertake in preparing the Statement of Cash Flow
Step 1 Determine the net increase /decrease in cash for the period. Step 2 Determine cash flows from operating activities. Step 3 Determine cash flows from investing activities Step 4 Determine cash flows from financial activities Step 5 Complete the Statement of Cash Flows

15

16 Step 2 cash flows from operating activities
Cash receipts from operations Cash payments from operations For sale of goods and services to customers For supplies Interest and dividends from investments For employees For operating expenses For interest For taxes

17 Cash from Customers Cash Received from Credit Customers + Cash Received From Cash Customers = Total Cash Received From Customers

18

19 Cash paid to suppliers Cost of Goods Sold Plus: Ending Inventory Less: Opening Inventory = Purchases from Suppliers Add: Opening Accounts Payable Less : Closing Accounts Payable = Cash payments TO SUPPLIERS

20 QUESTIONS  Calculate the payments to suppliers:  Cost of sales - $429,800 Opening inventory - $39,200 Closing inventory - $25,600 Accounts Payable at beginning - $42,600 Accounts Payable at end - $21,000

21 Cash payments for expenses: adjusting for prepaid expenses
Expense from Income Statement Less: Opening Prepayments Plus: Closing Prepayments = Cash payment for EXPENSE

22 Cash payments for expenses: adjusting for accrued expenses
Expense from Income Statement Plus: Opening Accrued Expense Less: Closing Accrued Expense

23 QUESTIONS (a) Total operating expenses as shown in the Income Statement for the year ended 31 March 2005 were $130,500. Prepaid expenses at the beginning and at the end of the year were $20,000 and $35,000 respectively. Accrued expenses at the end of the year were $8,350. Work out the payments for operating expenses for the year ended 31 March 2005.  (b) Calculate the tax payments for the year, based on the information provided below:  Tax expense $22,000 Tax Payable: Beginning balance $16,000 Ending balance $19,000

24 Step 3 Determine cash flows from investing activities
One of the main investing activities is the purchase and sale of property plant and equipment. The relevant cash flows are the cash paid to acquire the asset and the cash proceeds from selling an asset. This will require reconstructing the PPE asset and Accumulated Deprecation accounts.

25

26

27 Step 4 Determine cash flows from financial activities

28 Cash flow from financing activities
Cash was provided from: Issue of shares $20,000 Cash was applied to: Repayment of bank loan ($50,000) Payment of Dividend (62,000) ,000 Net cash outflow from financing activities ($92,000)

29 Step 5 Complete the Statement of Cash Flows
This step requires completing the cash flow statement ensuring the net increase in cash plus the opening position equals the closing cash position.


Download ppt "Statement of Cash Flows"

Similar presentations


Ads by Google