Cash Flow Statement Preparation

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.

Other Financial Statement Links

• Cash is an asset on the statement of financial position.
• The cash flow statement reconciles the opening and closing balances of cash.
• Operations are reported under accruals, and discrepancies between accruals and cash flow show an impact on current assets/liabilities on the statement of financial position.
• Investing and financing activities relate to the non-current assets and liabilities section respectively.

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.