1. Statement of cash flows
Study unit 7
FAC1601

2. Overview Main objective and advantages
Relationship with other financial statements
Identification of non-cash entries
Format
Cash flows from operating activities
Direct or indirect method
Items disclosed after cash generated from or used in operations
Cash flows from investing activities
Cash flows from financing activities
Cash and cash equivalents

3. Main objective and advantages
Disclose how cash and cash equivalents are generated and managed.
Advantages
Enables user to evaluate
Changes in net assets
Ability of business to affect timing & amounts of cash flow
Financial structure of business
Detect imminent financial problems

4. Interaction with other financial statements
Cash flows from operating activities
Cash generated from/(used in) operations
Statement of p/l and other comprehensive income
All items that determine profit for the year
Excluding
Non-cash items
Items disclosed later
Operating activity items to be disclosed after cash generated from/(used in) operations
SPLOCI
Other income
Finance income
Income tax expense
SOCE (Statement of changes in equity)
Drawings
Distributions to members
SFP (Statement of financial position)
Current assets (Equity held for trading)

5. Interaction with other financial statements
Investing activities
SFP
Non-current assets
Financing activities
Total equity
Non-current liabilities
Current liabilities
Cash and cash equivalents
Current assets
Bank, petty cash etc
Overdraft etc.

6. Non-cash entries Income recorded, cash not received
Credit sales and other accrued income
Income recorded, cash received in prior period
Income received in advance – prior period
Income received in advance
Expense recorded, not paid
Credit purchases and other accrued expenses
Expenses recorded, paid in prior period
Prepaid expenses – prior period
Prepaid expenses
Assets purchased on credit
Credit sale of asset
Profit/loss on sale of asset
Revaluation of non-current assets
Depreciation
NRV of current assets
Creation/ adjustment of allowance for credit losses
Settlement discount granted/received

7. Preparation of statement of cash flows

8. Cash generated from/(used in) operations: Direct
Cash receipts from customers
Determine income items (SPLOCI)
Adjust for non-cash items (SFP)
+ Income in arrears (Beg)
- Income received in advance (Beg)
- Income in arrears (End)
+ Income received in advance (End)
Cash paid to suppliers and employees
Identify expense items (SPLOCI)
+ Accrued expenses (Beg)
- Prepaid expenses (Beg)
- Accrued expenses (End)
+ Prepaid expenses (End)

9. Disclosure – Part 1A (Direct method)
Entity name
Statement of cash flows for the year ended …
R R
CASH FLOWS FROM OPERATING ACTIVITIES
Cash receipts from customers
Cash paid to suppliers and employees
Cash generated from operations

10. Cash generated from/(used in) operations: InDirect
Start with
Profit for the year (Sole proprietors & partnerships), or
Profit before tax
Adjust for non-cash items
Depreciation etc.
Adjust for items disclosed after the cash generated from/(used in) operations
According to format of statement
Dividends received, interest received, interest paid, income tax paid, drawings, distributions to members and proceeds from sale of listed shares
Incorporate difference between
Opening & closing balances of
Current assets
Trade debtors & inventory
Current liabilities
Trade creditors

11. Disclosure – Part 1B (Indirect method)
Entity name
Statement of cash flows for the year ended …
R R
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Interest paid
Depreciation
Dividend income
Profit on sale of non-current asset
(In)/Decrease in working capital
(In)/Decrease in inventory
(In)/Decrease in trade and other receivables
In/(Decrease) in trade and other payables
Cash generated from operations

12. Operating activity items disclosed after cash generated from/(used in) operations
SPLOCI & SOCE
Identify items and adjust for non-cash
Items
Dividend income
Interest income
Finance costs
Drawings
Distributions paid to members
Distribution to members (SOCNIM) + Distributions payable to members(OB-CB)
Income tax paid
Acquisition and proceeds of financial assets at fair value through profit or loss: Held for trading

13. Cash flows from investing activities
Non-current assets
Difference between opening and closing balances
Additions
Disposals
Adjusted for non-cash items
Depreciation
Revaluation
Profit/loss of sale of asset

14. Financing activities Funding instruments
Equity
Debt
Movement between opening and closing balances
Members contributions
Long-term loans
Adjusted for non-cash items
Transfers to/from reserves

15. Cash and cash equivalents
Highly liquid instruments
Maturity period < 3 months