Statement of cash flow By Praew 11Yo

Statement of Cash Flow Cash Flow Cash = Cash + Bank Report how cash has been used Indicate how cash will be used in the future

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

Cash Shortage Run out of business Statement of cash flow helps signal this

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 increase Drawings/ Dividends increase

Cash Per statement of financial position at the end of the previous period Change Must be the result of cash flows during current period Cash Per statement of financial position at the end of the current period 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, 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. Depreciation 2. Allowance for doubtful debts 3. Book profits and losses on sale 4. 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 Proceed – Book value = gain/loss We use ‘Proceed’ amount 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

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-

TypesActivitiesChangeInflow/ Outflow Premises at cost 25,00028,800NC assetsInvest3, UTFLOW Inventory12,50012,850C assetsOperate350 +OUTFLOW A/R21,65023,140C assetsOperate1,490 +OUTFLOW Cash/Ban k 4,300 5,620C assetsOperate1,320 + A/P11,35011,120C liabilityOperate230 +Outflow Net profit25,440Operate Drawings18,250Finance

Reconciliation of net profit to net cash flow Business ABusiness BBusiness C Net profit16,27021,39032,410 Adjustment for items not involved in the movement of cash. Depreciation for the year 2,6904,1206,640 Increase allowance of doubtful debts Decrease allowance for doubtful debts (200) Book losses on sales of non current asset 1, Book Profit(750) 20,70025,120 39,340

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