finance and acc - cash flow statement

what is a cash flow statement?

summarises all inflows of cash (and cash equivalents) for a business over a period

inportance of cash

business will not survive, without cash, pay suppliers pay employees, pay dividends to share holders, repay debts to lenders, purchase assets

what does the statement report?

opening cash → cash inflows and outflows → closing cash

what counts as cash?

include highly liquid balances available for short term use

what is net decrease?

the difference between opening and closing cash

what is liquid cash

selling an asset to pay off a loan, debt or to invest, (e.g selling your pc for a better pc or to pay off a debt)

what counts as cash? : cash

current bank accounts, cash on hand, bank overdrafts as negative cash where applicable

what counts as cash? : cash equivalents

short term and highly liquid, readily convertible to known cash ammounts, insignificant risk of value changes, typically convertible within three months

what are the three categories of cash flows

operating, investing and financing

cash generated by core operations : inflows

cash from customers, interest and dividends received where classifies as operating

cash generated by core operations : outflows

payments to suppliers, payments to employees, taxes and interest, other operating expenses

changes in investment activities: inflows

sale of property, plant, and equipment, sale or maturity of investments, collection of loans to other entities

changes in investment activities: outflows

purchase of property, plant and equipment, purchase of investments, loans made to other entities.

chances in finance activities: inflows

issue of ordinary shares, proceeds from long term borrowing

chances in finance activities: outflows

repayment of long-term debt, cash dividends, repurchase of shares

two methods of operative activities?

direct method, indirect method

operative activities: direct

shows cash receipts directly, shows cash payments directly, focuses only on cash movements

operative activities: indirect

starts with profit, adjusts non cash items