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Cambridge a level cash flow statement
The document discusses the statement of cash flows, highlighting its importance for short-term business survival and detailing how it differs from income statements and statements of financial position. It covers types of cash movements, regulatory requirements under international accounting standards, and the distinction between direct and indirect methods of presenting cash flows. Additionally, it includes examples, test questions, and emphasizes the historical nature of cash flow statements and their limitations in representing non-cash transactions.
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Cambridge a level cash flow statement
- 1. Statement Cash Flows 1Accountingwith Sanjaya Statement of Cash Flows Sanjaya Jayasundara B.Sc.(Finance) Sp. University of Sri Jayewardenepura, Investment Advisor, International School Teacher
- 2. Statement Cash Flows 2Accountingwith Sanjaya Content Introduction. Types of cash movements Types of statement of cash flows Important words Examples Past Paper Questions Model questions. Extra Readings Important Slides Summary Syllabus according to Cambridge IAL 1 Financial Accounting (A level) – Paper 03 IAS 7 Statement of cash flows 1.1.3 Limited companies Candidates should be able to: • understand the nature and purpose of the financial statements of limited companies, and the regulatory framework in which they operate • prepare an income statement, statement of financial position and statement of cash flows for a limited company in line with the relevant international accounting standards A separate tutorial will be given for Published Company accounts
- 3. Statement Cash Flows 3Accountingwith Sanjaya Introduction Generation of cash is of vital importance for the short-term survival of all businesses, while profits ensure survival in the longer term. An income statement concentrates on the determination of profits or losses over a period of time. A statement of financial position shows the assets and liabilities of a business at one particular moment in time. A statement of cash flows details cash inflows and cash outflows that have occurred during a period. The three statements used together summarise most of the information required by the users of financial statements. ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… Only larger limited companies are required, under International Accounting Standards, to prepare a statement of cash flows as part of their end-of-year financial statements. They must prepare financial statements in accordance with Companies Acts 1985 and 1989 and with International Accounting Standards(IAS). IAS 7 Statement of cash flows lays down the way that the statement must be set out. This allows comparisons to be made with the statements of other companies. Test your understanding: 01.‘Only larger limited companies are required to prepare a statement of cash flows as part of their financial statements.’ Is this statement true or false? 02.‘A statement of cash flows is used to calculate profit.’ Is this statement true or false? 03.‘ A statement of cash flows will indicate whether or not the business requires a bank overdraft in a few months’ time.’ Is this statement true or false? What is the difference between cash and cash equivalents? Cash ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… Cash equivalents ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………
- 4. Statement Cash Flows 4Accountingwith Sanjaya Types of cash flows/movements ……………………………………………………………………………………………………………………………………………… 01.Operating activities ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… Examples: ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… 02.Investing activities ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… Examples: ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… 03.Financing activities ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… Examples: ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… Test your understanding: 01.Which International Accounting Standard deals with statements of cash flows? 02.Identify two uses for preparing a statement of cash flows. 03.Identify the three sections required by IAS 7 that must be shown in a statement of cash flows.
- 5. Statement Cash Flows 5Accountingwith Sanjaya What is the difference between Statement of Cash Flows Under Direct method and Indirect method? ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… General Format of Statement of Cash Flows Indirect Method Operating Activities $ $ Operating Profit (PBIT) ××× Adjustments Working Capital changes Interest paid Tax paid Net Cash inflow/outflow from operating activities
- 6. Statement Cash Flows 6Accountingwith Sanjaya Past Paper Questions October/November 2019 – Variant 32
- 7. Statement Cash Flows 7Accountingwith Sanjaya February/March 2019 – Variant 32
- 8. Statement Cash Flows 8Accountingwith Sanjaya The uses of Statement of Cash Flow Statement ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………………………………
- 9. Statement Cash Flows 9Accountingwith Sanjaya October/November 2016 – Variant 31
- 10. Statement Cash Flows 10Accountingwith Sanjaya What is the purpose of statement of cash flows? The primary purpose of the statement of cash flows is to provide information aboutcash receipts, cash payments, and the net change in cash resulting from the operating, investing, and financing activities of a company during the period Revaluation of Non-current assets A revaluation of non-current assets (NCA) changes a statement of financial position. The NCA will increase in value, as will the equity of the company. However, as such a revaluation merely involves ledger entries, there will be no movement in cash. Therefore, there will be no entry in a statement of cash flows. Bonus issue of shares Such transactions impact on the statement of financial position of a limited company, but do not cause any movements in cash resources. The issue of bonus shares is not shown in a statement of cash flows.
- 11. Statement Cash Flows 11Accountingwith Sanjaya Challenge Question
- 12. Statement Cash Flows 12Accountingwith Sanjaya It is important to remember that; A statement of cash flows is a historical document that is prepared after the financial year-end. A cash-flow forecast should be more properly referred to as a cash budget and it is a prediction or estimation of probable future cash flows. Only cash flows arising from purchases and sales of non-current assets appear under ’Investing activities’. Changes in current assets appear as adjustments to the profit from operations. Non-cash transactions are book entries and do not involve movements in cash. All the best children…! I wish you an enjoyable learning session...! Sanjaya Jayasundara For short Notes: https://www.slideshare.net/SanjayaJayasundara/statement-of-cash-flows