Cash Flow Statement

Explain why earning profit may not always result in a corresponding increase in cash balances. Use figures from question to support your answer.

• Credit sake increase profit, but do not increase cash. Debtors increased by €X.

• Depreciation on fixed assets of €X reduces profit but does not reduce cash.

• Receipts from the sale kf fixed assets €X, increases cash but has no immediate effect on profit.

• Receipts from issue of shares and premium, €X, increases cash but has no immediate effect on profit.

Outline the reasons why the company would prepare a cash flow statement

• To show cash inflow and cash outflow during the year

• To aid financial planning

• To highlight that profit does not always equal to cash

• To assist in application for loan from financial institution

• To comply with Company Law

Explain whatis menat by a non-cash item and give examples

• Non-cash items are in the profit and loss account taht affects the net profit, but they do not affect the cash situation

• E.g. Depreciation €X, increased in bad debt provision €X, loss on sale of fixed assets €X, patent/goodwill written-off €X.

Explain two items that affect cash but not profit

• The purchase of fixed assets will decrease cash but does not change profit.

• The introduction of capital will increase cash but not profit

Outline two responsibilities of the Director of a plc

• To keep proper accounting records enabling financial statement to be prepared

• To comply with the Companies Acts

• To present an annual report to shareholders at the Annual General Meeting.

Write a note on the Accounting Standards Board. Refer to the main activity of the board and how it influence the preparation of Cash Flow statement.

• The Accounting Standard Board issue new Accounting standards and withdraws old Accounting standards

• It is an independent body and reports directly into the Financial Reporting Council

• All new standards issued by the ASB are called Financial Reporting Standards (FRS)

• This standard requires large companies to prepare a cash flow statement for each activity period.

• It requires that individual cash flows should be e tired under standard heading and 2 reconciliation notes to be kept separate from the Cash Flow Statement

Financial Reporting Standard 1 requires companies to prepare a cahs flow statement. What is Financial Reporting Standard.

• A rule that must be applied to all financial statements in order to give true and fair view of the company's financial position.

• Sets out best practice in accounting that allows accounts to be compares from year to year and from company to company

List three accounting obligations of a large company under the Company Act

• Provide a full set of accounts to shareholders at the AGM.

• File, register and publish a full set of accounts with the Registrar of Companies

• Have the account audited