Week 3 - Presentation of Financial Statements II - Financial statements from the accounting equation
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34 Terms
What is the statement of cashflows
a statement of change in financial position statement emphaisisng and disclosing the cash flows for a period of time/ information about the change in cah balance over a period of time
Liquidity
the ability of a business to pay is debts when they fall due
Statement of cash flows equation
Cash balance/ change in cash and simialr liquid assets = cash receipts (cash inflows) - cash payments (cash outflows)
why is a statement of cash flows needed
cash in an asset on the sofp but need a seperate statement because cash is not the same as profit
How does the statement of cash flow link to the SofP
it explains how the opening of SofP cash position became the closing of the SofP cash position
what is the full statement of cash flows equation
(Operating activities cash inflows - cash outflows) + (Investing activities cash inflows - cash outflows) + Financing acitvities (cash inflows - cash outflows) = change in cash assets
2 examples of operating activities
buying goods to sell to customers, receiving cash from customers
what are investing activities
relates to capital expenditure e.g. buying and selling non-current assets for long-term purpose
what are financing activities
cashflows relating to raising and repaying long-term finance e.g. taking out a new loan
what is capital expenditure
non-current asset: expenditure to create, acquire or improve long-term (non-current) assets - future benefits
what is revenue expenditure
An expense: expenditure for trading purposes or long-term asset maintenance - no new future benefits
why is it important to distinguish between capital and revenue expenditure
capital expenditure is recognised in the statement of financial position and doesn’t affect profit at the time of the transaction, revenue expenditure is recognised in the income statement and reduced current profit
what is the profit equation
profit = income (revenue) - expenses