Chapter 12: The Cash Flow Statement

Cash inflows that are not revenues

Capital contribution, loan received, GST received, GST refund

Importance of reporting on cash and profit

Cash and profit are different and it is important that the owner is provided with different information on both items. Without information on both cash and profit, the owner will not be able to manage both effectively

Examples of financial activities

Cash capital contributions, loan received, drawings, loan repaid

Cash outflows that are not expenses

Cash drawings, loan repayments, cash payments for NCA'S, GST paid and GST settlement

Cash items that do not affect profit

Cash inflows that are not revenues and cash outflows that are not expenses

Examples of investing activities

Cash received from sale of non current assets or cash paid from purchase of non current assets

Examples of operating activities

Cash sales, receipts from debtors, GST received, payment to creditors, GST paid, prepaid expenses, wages, GST settlement

Cash Receipts Journal for CFS

Cost of sale does not record a cash flow and thus should not be recorded in the cash flow statement. Receipts from debtors is calculated by debtors control less discount expense and thus discount expense is not a cash flow

Net Loss but cash surplus

Could be because of the following: capital contribution, loan received, more GST received than paid, stock loss, bad debts, depreciation, credit sales less than receipts from debtors, cost of sales greater than payments for stock

Net Profit but cash deficit

Could be because of the following: cash drawings, loan repayments, cash payments for NCA'S, more GST paid then received, stock gain, credit sales greater than receipts from debtors, cost of sales less than payments for stock

Cash Payments Journal for CFS

Payments to creditors needs to be calculated by creditors control less discount revenue as only the cash paid should be recorded

What is profit?

Profit is determined by comparing revenues earned and expenses incurred in that period

Items that affect both cash and profit

Revenue and expenses like credit sales, cost of sales and other expenses incurred. Cash inflows and out flows like receipts from debtors, payments to creditors, cash purchases and other expenses paid

Profit items that do not affect cash

Revenues that are not cash inflows and expenses that are not cash outflows

Revenues that are not cash inflows

Stock gain

Expenses that are not cash flows

Stock loss, bad debts and depreciation

Calculating Cash Surplus/ Deficit

Surplus/(Deficit) = cash receipts less cash payments

Operating Activities

The cash flows related to day to day trading activities

Financing Activities

The cash flows related to the changes in the financial structure of the firm

Investing Activities

The cash flows related to the purchase and sale of non current assets

What is cash?

The change in a firm's bank balance is calculated by comparing cash inflows and cash outflows in a period

Uses of the cash flow statement... to aid

To aid decision making about the firms cash activities by detailing the sources and uses of cash in a particular period

Uses of the cash flow statement

To aid, to assess, to assist, to facilitate

Uses of the cash flow statement... to assess

To assess the firms performance in meeting its cash targets, by comparing against budgeted performance

Uses of the cash flow statement... to assist

To assist in planning for the future cash activities by providing a basis for the next budget, the cash flow statement will aid in the setting of targets for the future

Role of the cash journals

To classify or summarise the information from the cash receipts and cheque butts. The cash journals also represent individual amounts

Basic function of all accounting reports

To communicate financial information to the owner to assist decision-making

Uses of the cash flow statement... to facilitate

To facilitate in the calculation of financial indicators for analysis and interpretation

GST paid and GST received for CFS

All GST transactions are recorded in the operating section. Inflows are GST received and GST refund. Outflows are GST paid and GST settlement

What is the cash flow statement?

An accounting report that details all cash inflows and outflows from operating, investing and financing activities and the overall change in the firms cash balance

Statement of Receipts and Payments

An accounting report that details cash received and paid during a reporting period and the change in the firms bank balance over that period

What is a cash deficit?

An excess of cash payments over cash receipts, leading to a decrease in the bank balance

What is a cash surplus?

An excess of cash receipts over cash payments, leading to an increase in the bank balance