financial management cashflows

1. Statement of Cash Flows

2. Outline
• Objective
• Importance
• Cash and Cash Equivalents
• Presentation of the Statement of Cash Flows
o Components
o Format
• Limitations of the Statement of Cash Flows

3. OBJECTIVE
The objective of preparing statement of cash flows is:
• To present information about the historical changes in cash and cash
equivalents of an entity
• To classify cash flows during the period between those arising from operating,
investing and financing activities.

4. Importance
The statement of cash flows reports the cash receipts, cash payments, and net
change in cash resulting from operating, investing, and financing activities
during a period.
1. The entity’s ability to generate future cash flows.
2. The entity’s ability to pay dividends and meet obligations.
3. The reasons for the difference between net income and net cash provided
(used) by operating activities.
4. The cash investing and financing transactions during the period.

5. CASH AND CASH EQUIVALENTS
• Cash on hand and on demand deposits.
• Cash at bank
• Short-term highly liquid investments that are readily convertible in to cash

6. PRESENTATION OF THE STATEMENT OF
CASH FLOWS
STATEMENT
OF CASH
FLOWS
Investing
activities
Financing
activities
Operating
activities
(direct/indirect)

7. PRESENTATION OF THE STATEMENT OF
CASH FLOWS
Cash flows must be analysed between operating, investing and financing activities.
• Operating activities:
Main revenue-producing activities of the entity that are not investing or financing
activities
• Investing activities:
The acquisition and disposal of long-term assets and other investments that are not
considered to be cash equivalents.
• Financing activities:
Alter the equity capital and borrowing structure of the entity.

8. PRESENTATION OF THE STATEMENT OF
CASH FLOWS
During its first week, Duffy & Stevenson Company had these transactions.
1. Issued 100,000 shares of $5 par value common stock for $800,000 cash.
2. Borrowed $200,000 from Castle Bank, signing a 5-year note bearing 8%
interest.
3. Purchased two semi-trailer trucks for $170,000 cash.
4. Paid employees $12,000 for salaries and wages.
5. Collected $20,000 cash for services performed.
Classify each of these transactions by type of cash flow activity.

10. FORMAT OF THE STATEMENT OF CASH
FLOWS
C Assets
2020 2019
Cash at bank 20,000 25,000
Net Decrease in cash by (5,000)
Cash at beg 25,000
Cash at the year end 20,000

11. PRESENTATION OF THE STATEMENT OF CASH FLOWS
For operating cash flows, the direct method of presentation is encouraged, but the indirect
method is also acceptable.
Cash flows from Operating Activities:
Direct Method:
Cash received from customers $ XX
Cash paid to suppliers (XX)
Cash paid to or on behalf of employees (XX)
Other cash expenses (XX)
Cash generated from operations XX/(XX)

12. PRESENTATION OF THE STATEMENT OF CASH FLOWS
Indirect Method:
Net profit before & tax / EBIT $ XX
Adjustments for finance cost/investment
income ( Not needed when EBIT is taken)
XX/(XX)
Profit from operations XX
Adjustments for non-cash items -1 XX/(XX)
Operating profit before working capital
changes
XX
Increase/ Decrease in inventory (XX)/XX
Increase/ Decrease in trade receivables (XX)/XX
Increase/ Decrease in trade payables XX/(XX)
Cash generated from operations XX/(XX)

13. Statement of cash flows
Cash generated from operations (either from
direct or indirect method)
$ XX/(XX)
Interest paid (XX)
Tax paid (XX)
Net cash from operating activities (A) XX/(XX)
Cash flows from investing activities:
Purchases of property, plant & equipment (XX)
Proceeds of sale of property, plant & equipment XX
Interest received XX
Dividends received XX
Net cash from investing activities (B) XX/(XX)
Cash flows from financing activities
Proceeds from issue of shares XX
Proceeds/Redemption of long-term borrowings XX/(XX)
Dividends paid (XX)
Net cash used in financing activities (C) XX/(XX)

14. PRESENTATION OF THE STATEMENT OF CASH FLOWS
Net increase/decrease in cash and cash equivalents
(A+B+C)
$ XX/(XX)
Add: Cash and cash equivalents at the beginning of
the period
XX
Cash and cash equivalents at the end of the period XX

15. Net cash generated in 2017:
28,200-17,700 = 10,500

19. NAME OF COMPANY
FINANCIAL STATEMENT
DATED
CASH GENERATED FROM OPERATING ACTIVITES:
Cash received from customers
Cash paid to suppliers
Cash expenses
Tax paid
Interest paid

20. 22,000
Operating profit 234,000
Adjustments:
Dep 9,000
Loss on disposal 3,000
A/Rec 10,000
Inventory (5,000)
Prepaid (4,000)
A/Pay 16,000
Cash generated from oper. 263,000
Interest paid (42,000)
Tax paid (49,000)
Net cash provided by OA 172,000

21. DIRECT METHOD
CASH RECEIVED FROM CUSTOMERS

22. DIRECT METHOD
CASH PAID TO SUPPLIERS

23. DIRECT METHOD
CASH PAYMENT FOR OPERATING EXPENSES
PAYMENT FOR INCOME TAX

26. Beg. Bal 26,000 Cash received 848,000 bal. 0 COGS 465,000
Sales 890,000 end. Bal 68,000 Purchases 519,000 end. Bal 54,000
Accounts payable Cash paid for expenses:
Cash paid 536,000 beg bal 40,000 operating expense-depreciation = 188,000
End bal 23,000 Purchases 519,000 decrease in prepaid = (2,000)
Increase in accrued exp = (10,000)
Total cash paid = 176,000
Accounts Receivable Inventory
Cash received from customers = 848,000
Less:payments
Suppliers 536,000
Expenses 176,000
Interest paid 12,000
Tax paid 65,000
Total cash generated from operating activities 59,000

29. Other Information:
During the year, the company paid
$90,000 for a new piece of
machinery.