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Statement of cash flow By Praew 11Yo
Statement of Cash Flow
Business need to ensure:1. Sufficient profits are made to finance the
business activities2. Sufficient cash funds are available when
needed
Statement of Cash Flow
Statement of Cash Flow
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 flowProfits 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 increaseDrawings/ Dividends increase
Statement of Cash Flow
Profit & LiquidityEven 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 $60,0002. 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. Depreciation2. Allowance for doubtful debts3. Book profits and losses on sale4. 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
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
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 -
31.12.2012
31.21.2013
Types Activities
Change Inflow/ Outflow
Premises at cost
25,000 28,800 NC assets
Invest 3,800 + 0UTFLOW
Inventory 12,500 12,850 C assets Operate 350 + OUTFLOW
A/R 21,650 23,140 C assets Operate 1,490 + OUTFLOW
Cash/Bank
4,300 5,620 C assets Operate 1,320 +
A/P 11,350 11,120 C liability Operate 230 + OutflowNet profit 25,440 OperateDrawings 18,250 Finance
Reconciliation of net profit to net cash flow
Business A Business B Business CNet profit 16,270 21,390 32,410Adjustment for items not involved in the movement of cash.Depreciation for the year
2,690 4,120 6,640
Increase allowance of doubtful debts
540 360
Decrease allowance for doubtful debts
(200)
Book losses on sales of non current asset
1,200 490
Book Profit (750)
20,700 25,120 39,340
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