Podcast
Questions and Answers
What is the effect of profits on cash flow?
What is the effect of profits on cash flow?
- They increase cash inflows. (correct)
- They reduce cash inflows.
- They have no impact on cash flow.
- They increase cash outflows.
What happens to cash flow when fixed assets are sold?
What happens to cash flow when fixed assets are sold?
- Cash is lost due to depreciation.
- There is no effect on cash flow.
- Cash flows out of the business.
- Cash is introduced into the business. (correct)
How does a decrease in stock impact cash flow?
How does a decrease in stock impact cash flow?
- It has no significant effect on cash flow.
- It results in losses, decreasing cash.
- It increases cash tied up in the business.
- It converts stock into cash. (correct)
Which statement correctly describes the relationship between debtors and cash inflow?
Which statement correctly describes the relationship between debtors and cash inflow?
What is the main purpose of the statement of comprehensive income?
What is the main purpose of the statement of comprehensive income?
What effect does a decrease in creditors have on cash?
What effect does a decrease in creditors have on cash?
Which of the following leads to an increase in cash entering the business?
Which of the following leads to an increase in cash entering the business?
How does cash flow at the end of the current period relate to previous cash flows?
How does cash flow at the end of the current period relate to previous cash flows?
Flashcards
What is a Cash Flow Statement?
What is a Cash Flow Statement?
A financial statement that shows how much cash a company has generated and used during a specific period. It highlights where cash comes from and where it goes.
How does stock (inventory) affect cash flow?
How does stock (inventory) affect cash flow?
An increase in stock (inventory) means you're investing more money in goods. A decrease means you're selling more goods and converting them to cash.
How do debtors affect cash flow?
How do debtors affect cash flow?
When debtors pay their outstanding bills, it's cash inflow. Letting debtors increase means delaying cash inflow.
How does profit/loss affect cash flow?
How does profit/loss affect cash flow?
Signup and view all the flashcards
How does owner investment and dividends affect cash flow?
How does owner investment and dividends affect cash flow?
Signup and view all the flashcards
How do loans affect cash flow?
How do loans affect cash flow?
Signup and view all the flashcards
How do creditors affect cash flow?
How do creditors affect cash flow?
Signup and view all the flashcards
What does the statement of financial position show?
What does the statement of financial position show?
Signup and view all the flashcards
Study Notes
Cash Flow Statements
- A cash flow statement tracks where cash comes from and where it goes.
- Exhibit 39.1 details cash flow.
Cash Comes From
- Profits: Increased cash.
- Sales of Fixed Assets: Sale of assets.
- Decrease in Stock: Reduced inventory.
- Decrease in Debtors: Payments received.
- Capital Introduced: Investments.
- Loans Received: Loans.
- Increase in Creditors: Increased debts.
Cash Goes To
- Losses: Reduced cash.
- Purchase of Fixed Assets: Buying assets.
- Increase in Stock: More inventory.
- Increase in Debtors: Credit given to customers.
- Drawings/Dividends: Payments to owners.
- Loans Repaid: Loans repaid.
- Decrease in Creditors: Reduced debts.
Explanation of Cash Flow
- Profits: Generate increased cash, losses reduce it.
- Sales of Fixed Assets: Selling fixed assets brings cash in.
- Decrease/Increase in Stock: Lower inventory means cash inflow. Higher means cash outflow.
- Decrease/Increase in Debtors: Lower debtors means more money, higher means less.
- Capital Introduced/Drawings: Investments or withdrawals of owner's capital.
- Loans Received/Repaid: Increases or decreases cash (from loans).
- Increase/Decrease in Creditors: More credit leads to more cash available, lower credit leads to less.
Calculating Cash Flow at the End of Period
- Start with beginning cash balance.
- Add all cash inflows during the period.
- Subtract all cash outflows during the period.
- The result is the ending cash balance.
Relationship Between Statements
- Statement of Comprehensive Income: Tracks changes in the business's net assets over a period.
- Statement of Financial Position: Snapshot of assets, liabilities and equity at a point in time.
Advantages of Cash Flow Statements
- Predicting future cash flow: Better judge potential future cash.
- Evaluating financial viability: Better understanding of firm's liquidity position.
- Avoid manipulation: Not susceptible to accounting choices.
- Compare value over time: Compare different periods to look for any trends.
- Link profitability to cash generation: Better understanding of profitability and cash generation.
Disadvantages of Cash Flow Statements
- Short-term focus: Prioritizes short-term operations over long-term investment needs.
- Past data limitations: Based on past data and not fully predictive of future flow.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
Related Documents
Description
This quiz provides an in-depth understanding of cash flow statements, focusing on the sources and uses of cash within a business. Explore the various components such as profits, asset sales, and how losses affect overall cash flow. Ideal for students looking to grasp the basics of financial tracking.
