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Week 2 day 3 lecture slides.pptx

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Cash flow statement
Cash flow statement
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Week 2 day 3 lecture slides.pptx

  1. 1. Fundamental of Business Finance Week 2 day 3: Cash flow statement
  2. 2. Classroom etiquette Always preview/review relevant materials on Moodle before/after class. Always ask relevant questions during class. Keep your mobile phone silent or in switched off mode. Regularly attend the classes Dress appropriately Always bring a laptop, notebook, and pen in class.
  3. 3. Cash flow statement or statement of cash flow • A cash flow statement tracks the movement of cash through the business over a period of time. • It consists of all the company transactions that use cash (Checks) or supply cash (deposits). • Cash inflow and outflows falling within each category are added together to provide a total for that category. • A cash flow statement provides information on the adaptability of the business organisation
  4. 4. Standard presentation for cash flow statement (Atrill and Mclney, 2019)
  5. 5. Cash flow from operating activities • These are the cash inflows and outflows arising from normal daily trading activities ( selling of goods or services). • Inflow of cash refers to cash received from trade receivables, cash sales, and other income. • Outflow of cash refers to cash paid for stocks( inventories), wages, rents, corporation tax, interest. • Cash inflows are added and outflows are subtracted and net cash flow is obtained.
  6. 6. Cash flow from investing activities • These are the cash outflow and inflow from buying and selling of non-current assets. • On top of non-current assets, it also includes financial investment made in loans or shares in another business • Cash inflows are added and outflows are subtracted and net cash flow is obtained.
  7. 7. Cash flow from financing activities • These are the cash outflow and inflow from long-term financing of the business. • Cash inflows are getting a bank loan, issuing new shares, etc. • Cash outflows are paying back loans, paying dividends, etc. • Cash inflows are added and outflows are subtracted and net cash flow is obtained. Net cash flows for the period = Cash flows from operating+ cash flow from investing+ cash flow from financing = Surplus or deficit
  8. 8. Cash flow statement sample 1
  9. 9. Cash flow statement sample 2
  10. 10. Cash flow statement sample 3
  11. 11. Cash flow statement sample 4
  12. 12. Merits and demerits of cash flow statement Merits • It facilitates the measurement of the abilities of a business to meet its fixed obligations. • It is useful to determine the liquidity and solvency status of the entity during adverse conditions. • Identification of ‘Discretionary cash flows’ from business transactions becomes possible through cash flow analysis. • Cash flow statement reveals the information with regard to the availability of cash.
  13. 13. Merits and demerits of cash flow statement Demerits • Non-cash transactions are overlooked. • Not a substitute for an income statement. • Limited use. • Historical in Nature. • Ignoring the accrual concept.
  14. 14. Questions and answers
  15. 15. References: Atrill, P. and McLaney, E. (2019)Accounting and Finance for Non- specialists. 11th edn. United Kingdom: Pearson Education Limited. Elloitt, B. and Elliott, J ( 2019) Financial accounting and reporting. 19th edn.United Kingdom; Pearson Education limite. Jerry, J., Paul, D., and Donald, E. (2019) Financial accounting. 4th edn. Pizzey, A. (1994) Accounting and Finance a firm foundation.4th edn. London; Villiers House Weetman, P. (2019) Financial accounting an introduction. 8th edn.United Kingdom; Perason education limited.

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