Statement of cash flow By Praew 11Yo

Statement of Cash Flow

Business need to ensure:

1. Sufficient profits are made to finance the business activities

2. Sufficient cash funds are available when needed

Statement of Cash Flow

Statement of Cash Flow

Business activity 1. operating Activity (sales) revenue Expense Current asset Current liability Profit & loss

2. Investing Activity (Spend) Non-current asset 3. Financing activity (earn) Non-current liability Common Stock - Dividend Drawings

International Accounting Standard 7 – IAS 7

Companies are required to include a statement of cash flows with their published financial

statements

Statement of Cash Flow

Cash In flow & Cash out-flow

Cash in flow Cash out flow

Profits Increase

Losses increase

Non-current assets decrease

Non-current assets increase

Inventory decrease

Inventory increase

Account receivable decrease

Account receivable increase

Capital increase

Capital decrease

Loans increase

Loans decrease

Account Payable increase

Account payable decrease

Revenue increase

Expense increaseDrawings/ Dividends increase

Statement of Cash Flow

Profit & Liquidity

Even though companies make profits. They could face a shortage of cash

Example:1. A sole trader is making $40,000 profits for the

year, but his drawings have been over $60,000

2. A partnership whose products will not be on the market for quite a long time has invested in some very expensive machinery. A lot of money has been spent, but there’s no income.

Statement of Cash Flow

Items not involved in a movement of cash:1. Depreciation2. Allowance for doubtful debts3. Book profits and losses on sale4. Disposal of non-current assets

Statement of Cash Flow

1. Depreciation

Statement of Cash Flow

2. Allowance for doubtful debts

+ to net profit any increase in the allowance for doubtful debts

- from net profit any decrease in the allowance for doubtful account

Statement of Cash Flow

3. Book profits and losses on sale

Statement of Cash Flow

4. Disposal of non-current assets

Statement of Cash Flow

Net Profit:

After adjustments for depreciation

After adjustments to allowances for doubtful debts

After adjustments book profits/losses on sales of non-current assets

Statement of Cash Flow

Statement of Cash Flow

Reconciliation of net profit to net cash flow

Net profit +

Adjustment for items not involving the movement of cash:

Depreciation for the year +

Increase: Allowance for doubtful debts +

Decrease: Allowance for doubtful debts -

Book loss on sales of non- current assets +

Book profit on sales of non- current assets -

31.12.2012

31.21.2013

Types Activities

Change Inflow/ Outflow

Premises at cost

25,000 28,800 NC assets

Invest 3,800 + 0UTFLOW

Inventory 12,500 12,850 C assets Operate 350 + OUTFLOW

A/R 21,650 23,140 C assets Operate 1,490 + OUTFLOW

Cash/Bank

4,300 5,620 C assets Operate 1,320 +

A/P 11,350 11,120 C liability Operate 230 + Outflow

Net profit 25,440 Operate

Drawings 18,250 Finance

Reconciliation of net profit to net cash flow

Business A Business B Business C

Net profit 16,270 21,390 32,410

Adjustment for items not involved in the movement of cash.

Depreciation for the year

2,690 4,120 6,640

Increase allowance of doubtful debts

540 360

Decrease allowance for doubtful debts

(200)

Book losses on sales of non current asset

1,200 490

Book Profit (750)

20,700 25,120 39,340

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