1 © Copyright Doug Hillman 2000 Statement of Cash Flows

2 © Copyright Doug Hillman 2000 Purpose of Statement of Cash Flows l Provide information about cash receipts and payments during an accounting period l Helps us see how financial position changes during an accounting period l Only statement that collects and shows in one statement the causes of changes in cash during a financial reporting period.

3 © Copyright Doug Hillman 2000 Cash and Cash Equivalents l Cash includes currency on hand and anything which is accepted to bank as a deposit. l Cash equivalents are short-term, highly liquid investments that are »Readily convertible into cash.

4 © Copyright Doug Hillman 2000 Classification of Cash Receipts and Cash Payments OPERATING INVESTING FINANCING

5 © Copyright Doug Hillman 2000 Cash InflowsCash Outflows Cash Flow By Activity l Sale of goods or services l Other operating receipts Payments to suppliers for goods Payments to employees Payments of interest and taxes Other operating payments Operating Activities Operating Activities

6 © Copyright Doug Hillman 2000 Cash Flow By Activity (cont'd) Cash InflowsCash Outflows Investing Activities Investing Activities l Sale of property, plant and equipment l Sale of stocks and bonds l Repayment of loans l Sale of land held for resale l Receipts of interest and dividends Purchase of property, plant and equipment Purchase of stocks and bonds Purchase of infrastructure

7 © Copyright Doug Hillman 2000 Cash Flow By Activity (cont'd) Cash InflowsCash Outflows Financing Activities Financing Activities l Issue of stock capital l Issue of bonds l Borrowings Stock buy backs Dividends paid Repayment of borrowings

8 © Copyright Doug Hillman 2000 Operating Activities l Transactions that generally involve producing and delivering goods and providing services l Inflows »selling goods and services, interest, etc l Outflows »inventory, salary exp, interest exp

9 © Copyright Doug Hillman 2000 Investing Activities l Buying and selling plant assets and securities, and making loans and collecting on them l Inflows »sale of plant assets and investment securities, collecting loans l Outflows »purchasing plant assets, investment securities

10 © Copyright Doug Hillman 2000 Financing Activities l Obtaining resources from owners and providing return, and obtaining resources from creditors and repaying principal, and cost of borrowing. l Inflows »issuing stock, bonds, other short and long-term borrowing l Outflows »purchasing treasury bills, repaying principal, cash dividends

11 © Copyright Doug Hillman 2000 HAWKESBURY LTD Statement of Cash Flows for the financial year ended 30 June 2008 Cash Flows from Operating Activities $ $ Receipts from customersxx Payments to suppliers & employees(xx) Cash generated from operationsxx Interest paid(xx) Income taxes paid(xx) Net cash provided by operating activities xxx Cash Flows from Investing Activities Purchase of investments(xx) Payment for plant & equipment(xx) Proceeds from sale of equipmentxx Dividend received xx Interest received xx Net cash used in investing activities (xx) Cash Flows from Operating Activities $ $ Receipts from customersxx Payments to suppliers & employees(xx) Cash generated from operationsxx Interest paid(xx) Income taxes paid(xx) Net cash provided by operating activities xxx Cash Flows from Investing Activities Purchase of investments(xx) Payment for plant & equipment(xx) Proceeds from sale of equipmentxx Dividend received xx Interest received xx Net cash used in investing activities (xx)

12 © Copyright Doug Hillman 2000 Continue… Cash Flows from Financing Activities $ $ Proceeds from issue of share capitalxx Proceeds from long-term borrowings xx Repayment of borrowings(xx) Dividends paid(xx) Net cash provided by financing activitiesxx Net increase (decrease) in cash held xxx Cash and cash equivalents at beginning of year xxx Cash and cash equivalents at end of year$xxx Cash Flows from Financing Activities $ $ Proceeds from issue of share capitalxx Proceeds from long-term borrowings xx Repayment of borrowings(xx) Dividends paid(xx) Net cash provided by financing activitiesxx Net increase (decrease) in cash held xxx Cash and cash equivalents at beginning of year xxx Cash and cash equivalents at end of year$xxx

13 © Copyright Doug Hillman 2000 Example

14 © Copyright Doug Hillman 2000 Exercise # 1 Prepare Cash-flow statement from the following transactions: l Cash received from customers $ 12,000. l Cash paid to suppliers & employees $ 5,500. l Received short-term loan $ 18,900, l Interest received from customers $ 3,700. l Income tax paid $ 500. l Purchased marketable securities $ 3,000. l Payments to settle short-term debts $ 15,000. l Sold marketable securities $ 14,000. l Loan received from bank $ 240.

15 © Copyright Doug Hillman 2000 Exercise # 2 Prepare Cash-flow statement from the following transactions: l Cash sales $ 12,000. l Credit sales $ 5,500. l Collections on Accounts Receivable $ 18,900, l Interest & dividend received $ 3,700. l Income tax paid $ 500. l Purchased marketable securities $ 3,000. l Payments to merchandise suppliers $ 1,000. l Sold plant & equipments $ 19,000. l Loan received from bank $ 2,070. l Dividend received $ 3,800. l Depreciation expenses $ 12,000.