[FDNACCT] Unit 4 (Part 7): Statement of Cash Flows

Statement of Cash Flows

a change statement that analyses changes in cash and cash equivalents during a period

Statement of Cash Flows

provides information useful to assess the entity’s ability to generate cash and cash equivalents and to utilize those cash flows

Statement of Cash Flows

for investors to know if the business can pay dividends

Statement of Cash Flows

for lenders to know if the business can pay interest and principal

Statement of Cash Flows

ensure cash is available to pay operating expenses, liabilities, and maturing obligations

Statement of Cash Flows

evaluate cash flows to make plans for solvency and profitability

Statement of Cash Flows

forecast cash flows to assess future cash needs, financing, investing, dividend payments

Cash on hand
Demand deposits

(2) Cash

Cash equivalents

highly liquid investments that are readily convertible to known amounts of cash

Cash equivalents

subject to an insignificant risk of changes in value

Direct
Indirect

2 Methods in presenting cash flows

Direct method

cash effect of each operating activity is reported directly

Indirect method

cash flow from operating activities is derived indirectly by starting with reported net profit (loss) and adding (subtracting) items to convert that amount to cash basis

Operating
Investing
Financing

3 Cash flow activities

Operating Activities

principal revenue‑producing activities of the entity and other activities that are not investing or financing activities, including working capital changes

Investing Activities

acquisition and disposal of long‑term assets and other investments not included in cash equivalents

Financing Activities

activities that result in changes in the size and composition of the contributed equity and borrowings of the entity