Cash Flow Statement Preparation

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Questions and Answers

Which of the following is NOT included in the cash flow statement?

Cash flows from financing activities

Cash flows from non-operating activities (correct)

Cash flows from operating activities

Cash flows from investing activities

What is the purpose of the indirect method for preparing the statement of cash flows?

To show the cash flow generated by the business's main operations

To provide a summary of cash flow activity for a period of time

To start with net income and adjust it for non-cash items (correct)

To directly track all cash inflows and outflows

Which of the following would be included in the cash flow statement's investing activities?

Purchasing equipment for cash (correct)

Issuing bonds to the public for cash

Paying dividends to stockholders

Borrowing money from a bank

What does the term 'cash flow from financing activities' represent?

Cash flows related to the business's long-term debt and equity Signup and view all the answers

Which of the following is NOT a characteristic of a cash flow statement?

It is a measure of the company's profitability Signup and view all the answers

Which of the following is an example of a non-cash expense that must be added back to net income when using the indirect method?

Depreciation expense Signup and view all the answers

A company's cash flow from operations is $100,000, cash flow from investing activities is -$50,000, and cash flow from financing activities is $20,000. What is the company's net cash flow for the period?

$70,000 Signup and view all the answers

What is the relationship between the cash flow statement, balance sheet, and income statement?

The three statements are interconnected and provide a comprehensive picture of a company's financial performance and position. Signup and view all the answers

What email address is associated with Manish Thanki?

<a href="mailto:[email protected]">[email protected]</a> Signup and view all the answers

Which term is associated with the digital files related to Manish Thanki?

downloaded materials Signup and view all the answers

How many times does 'Downloaded by Manish Thanki' appear in the content?

10 Signup and view all the answers

What is the likely purpose of the repeated phrase in the content?

To emphasize ownership Signup and view all the answers

Which of the following can be inferred about the content structure?

It involves personal or individual use. Signup and view all the answers

Study Notes

Cash Flow Notes and Exercises

This document is cash flow notes and exercises from a financial accounting course at Walter Sisulu University.
The document provides detailed instructions on how to prepare a cash flow statement.
It covers cash flows from operating activities, investing activities, and financing activities.

Cash Flows From Operating Activities

Profit before interest and tax (operating profit) is the starting point. This is found in the comprehensive income statement.
Non-cash adjustments are needed to convert profit to cash. Depreciation is added back, and losses on disposals of assets are added. Gains on asset disposals are subtracted.
Working capital changes need to be considered. Inventory, receivables, and payables need to be compared between years. Increases/decreases are bracketed. Tax payable and dividends are not included in this part.
Interest paid and interest income are included from the comprehensive income statement, and interest paid should be in brackets.
Dividends paid are calculated by adding the previous year's final dividend and the current year's interim dividend (or a total for the current year from shareholders' dividend summaries).

Cash Flows From Investing Activities

Fixed assets purchased and sold are analysed
If cost price figures are available for both years, compare previous year and current year costs. Bracket any increases.
The carrying value of assets sold in the previous period is subtracted from the carrying value of the current year; depreciation for the current year; Carrying values should normally be shown, and the result is the fixed assets purchased.
Financial assets (like investments/fixed deposits) are compared between the years. Any increases are bracketed to indicate an outflow of cash.

Cash Flows From Financing Activities

Proceeds from shares issued must be compared in both years. Increases are "proceeds from the issue of ordinary shares."
Repayments of long-term loans are decreases and need to be bracketed to indicate an outflow of cash.
Proceeds from long-term loans need to be compared in both years. Increases are marked without brackets to indicate an inflow of cash.
Net increase/decrease in cash and cash equivalents (i.e., net increase or decrease in cash).

Statement of Cash Flows

Operating activities: Everyday business dealings
Investing activities: Buying and selling fixed assets or investments
Financing activities: Obtaining and repaying capital

Direct and Indirect Methods

Direct method: Starts with the company's actual cash receipts and payments, removing accrual effects (like depreciation) from profit.
Indirect method: Starts with profit and adjusts for non-cash items, such as depreciation.

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Description

This quiz focuses on the preparation of cash flow statements as part of a financial accounting course. It covers essential topics such as operating, investing, and financing activities, along with necessary adjustments and working capital considerations. Test your knowledge and understanding of cash flows from various operational contexts.