1. Lesson 5 Cash Flow Statement Li, Jialong 2011-2-26

2. Cash Flow A business must generate cash flow surpluses in order to pay its bills when they come due. Net cash flow = Money In – Money Out = Cash Receipts – Cash Payments Cash flow is NOT PROFIT as Revenue and expenses can be made on credit terms and paid at a later date.

3. Profit vs. Cash flow IN profit not cash flow are:  Credit sales  Credit purchases  Depreciation (a book entry)  Accruals  Payables and receivables  GST Goods and Services Tax IN cash flow not in profit is: Drawings and dividends The purchase of long term assets Loan repayments GST payments and receipts

4. Cash flow In a single entry cash recording system, the relevant financial records required for preparing a statement of cash flows will be the cashbooks of the business. The cash position of the business at the end of the period can be determined by referring to the bank reconciliation statement.

5. What does a Cash Flow Statement look like? Annual Cash Flow Statement Format

6. The cash Flow Statement is divided into three sections.  Operating Investing Financing Operating Section This section contains the receipts and payments for the normal running operations of the business. E.g. Sales and expenses Investing Section This section contains the receipts and payments that are generated from buying and selling noncurrent assets. E.g. Buying or selling equipment Financing Section This section contains the receipts and payments that are generated from Capital and loans and Drawings. E.g. Raising capital and a new loan or repaying a loan.

7. Review Questions Definition and format of a Cash Flow Statement Definition of Operating, Investing and Financing sections of a Cash Flow Statement Explain how the Cash Flow links to the Balance Sheet through the Cash in the Bank

8. Exercises Exercises 5.1 Exercises 5.2

9. Reading and Resources Student Notes and Readings Lesson 5

10. The End of Lesson 5