Your SlideShare is downloading. ×
0
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
The Cash Flow Statement (notes)
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

The Cash Flow Statement (notes)

895

Published on

0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
895
On Slideshare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
55
Comments
0
Likes
2
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. ram@2013 lesson notes on STATEMENT OF CASH FLOW RM Accounts Ed 1
  • 2. RATIONALE…. 2  Companies generally measure their income on an accrual basis.  The accrual basis in advertently fails to establish the company’s ability to generate cash.  The SOCF seeks to give a clearer picture /better understanding of the movement of cash (cash equivalents) within the company. RM Accounts Ed ram@2013
  • 3. USEFULNESS… 3  Assess the ability to generate positive net cash flows  Assess the ability to service loans and pay dividends  Explain changes in the cash position (open  Examine cash investing and financing activities RM Accounts Ed ram@2013 ) - end balances
  • 4. INDIRECT METHOD (IAS 7) 4 Seeks to adjust the accrual based net income in order to reflect the cash receipts for the period. RM Accounts Ed ram@2013
  • 5. SOCF 5  Is based on the net difference between cash inflows and cash outflows.  It is broken into three (3) distinct components  OPERATING ACTIVITIES  FINANCING ACTIVITIES  INVESTING ACTIVITIES RM Accounts Ed ram@2013
  • 6. OPERATING ACTIVITIES 6  The principle revenue producing activities (and such that do not include financing or investing).  Those activities that have an effect on the income statement.  They are examined through changes to the firm’s current assets and current liabilities; as well as reversal of non-cash actions on the income. RM Accounts Ed ram@2013
  • 7. INVETSING ACTIVITIES 7  The acquisition and/or disposal of long-term assets and other investments (excluding cash).  It involves the purchase of fixed assets for cash; as well as the disposal of fixed assets for cash.  It includes (cash) loans made; or the payment of interest and/or principle; as well as interest received on the loans or other investments. RM Accounts Ed ram@2013
  • 8. FINANCING ACTIVITIES 8  Those activities that result in changes in the composition and /or size of the firm’s capital and borrowings.  The activities that include resources borrowed and the repayment of resources borrowed. RM Accounts Ed ram@2013
  • 9. SOCF can help identify if there is…. 9  Sufficient cash to meet short term demand  Sufficient profit to finance its operations  Future opportunities for more cash flows  Liquidity to pay current debts  Necessity to offer additional shares or new capital The Statement of Cash Flow is a legal requirement for public companies. RM Accounts Ed ram@2013
  • 10. ram@2013 lesson notes on PREPARING THE CASH FLOW STATEMENT RM Accounts Ed 10
  • 11. Step one: cash flow from operating activity 11 Identify the profit before interest and tax (pbit). Adjust it for non-cash activity and changes in working capital. RM Accounts Ed ram@2013
  • 12. CASH FLOW FROM OPERATING ACTIVITIES 12  Operating Income  Add/deduct non-cash items  e.g. Depreciation, loss/gain on disposals  Adjust for changes in current assets  Add if the current assets decrease  Deduct if the current assets increase  Adjust for changes in current liabilities  Add if the current liabilities increase  Deduct if the current liabilities decrease RM Accounts Ed ram@2013
  • 13. Step two: cash flow from investing activity 13  Net the short-term servicing of finance.  Remove the corporation taxes actually paid; and then…  Adjust for investing activity in the non- current assets. RM Accounts Ed ram@2013
  • 14. CASH FLOW FROM INVESTING ACTIVITIES 14  Net the servicing of finance  Add interest received  Less interest paid  Extract the corporation tax paid  Less taxation  Net the investment in non-current assets  Add receipts of cash on disposal of assets  Deduct payments of cash on acquisition of assets RM Accounts Ed ram@2013
  • 15. Step three: cash flow from financing activity 15  Net the changes made to the share capital via cash;  Net the changes made to the long-term debt obligations via cash. RM Accounts Ed ram@2013
  • 16. CASH FLOW FROM FINANCING ACTIVITIES 16  Net the changes in share capital  Add issue of shares for cash  Deduct shares redeemed for cash  Deduct dividends paid on (own) shares  Net the changes in long-term debt obligations  Add issues of long-term debt instruments  Deduct payments on long-term debt instruments RM Accounts Ed ram@2013
  • 17. Step four: change in cash flow 17  Total the sub-categories     Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Net change in the cash flow RM Accounts Ed ram@2013 ±w ±x ±y ±z
  • 18. Step five: reconciliation (proof) 18  Demonstrate that the net change in cash is that reflected on the balance sheet (BS).    Cash amount disclosed at beginning (BS) Net change in cash flow (see SOCF) Cash amount disclosed at ending (BS) RM Accounts Ed ram@2013 p ±z r

×