Statement of cash flows

LGD Group: Dark Lucky Brad - Grek

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1.

Overview of cash flows statement

Purpose of cash flows statement Usefulness of cash flows statement Cash flow activities Direct method Indirect method

1. 2. 3.

2.
3.

Preparation of the statement

1. 2.

Cash accounting vs accrual accounting

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* Reflect the financial condition of the business * Represent cash receipts and payments for the period

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* Provide a summary of cash inflows and outflows * Help users understand how transactions affect
cash of business

the

* Based

on CFS, managers can make adjustments to operating, investing or financing activities business and its ability to pay the debts, especially in short term or dividends

* Predict future cash flows * Justify the liquidity of the

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* Assessing the ability to generate cash * Allows users to compare the cash
internally and externally of a business

flows both

* Useful

in checking the accuracy of past assessments of future cash flows and in examining the relationship between profitability and net cash flow and the impact of changing prices.

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Operating

Investing

Financing
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* The information is taken from accounting records * Produce the same result with indirect method. Only
the operating activities presentation is different.

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Statement of Cash Flows

Cash flows from operating activities Receipts: Collections from customers Total cash receipts Payments: To suppliers To employees For interest and income taxes Total cash payments Net cash from operating activities

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Statement of Cash Flows (Cont)

Cash flows from financing activities Receipts: Issue shares Loan borrowing Total cash receipts Payments: Dividends Total cash payments Net cash from financing activities

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Statement of Cash Flows (Cont)

Cash flows from investing activities Receipts

Sale of equipment/vehicles/land/etc. Interest/Dividends received

Total cash receipts Payments: Purchase of equipment/vehicles/land/etc. Total cash payments Net cash from investing activities Net cash from operating activities Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
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Cash flows from operating activities

Receipts from customers Interest received Cash paid to suppliers and employees Cash generated from operations Interest paid Income taxes paid Net cash flows from operating activities

$
5,000,000 505,000 (1,900,000) 3,605,000 (150,000) (350,000)

3,105,000

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Cash flows from investing activities

Purchase of property, plant, and equipment Proceeds from sale of equipment Net cash flows from investing activities (500,000) 35,000 (465,000)

Cash flows from financing activities Proceeds from issue of common stock Proceeds from issuance of long-term debt Dividends paid Net cash flows from financing activities 150,000 175,000 (45,000) 280,000

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period LGD Group 16 Cash and cash equivalents at end of period

2,920,000
2,080,000 $5,000,000
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* The indirect method is the most common format for

the statement of cash flow. in direct method.

* There are more details than the cash flow statement * The net profit or loss for the period is adjusted * The items in statements are shown being added or
subtracted as following:

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Current Asset
Cash Current Asset Cash

Current Liabilities
Cash Current Liabilities Cash

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Statement of Cash Flows

Cash flows from operating activities Profit before interest and tax Add depreciation Loss (profit) on sale of non - current assets (Increase)/Decrease in invetories (Increase)/Decrease in receivables Increase/(Decrease) in payables Cash generated from operation

Interest paid
Income tax paid Net cash flows from operating activities

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Statement of Cash Flows (Cont)

Cash flows from financing activities Receipts: Issue shares Loan borrowing Total cash receipts Payments: Dividends Total cash payments Net cash from financing activities

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Statement of Cash Flows (Cont)

Cash flows from investing activities Receipts

Sale of equipment/vehicles/land/etc. Interest/Dividends received

Total cash receipts Payments: Purchase of equipment/vehicles/land/etc. Total cash payments Net cash from investing activities Net cash from operating activities Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period
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Cash flows from operating activities

Net income before tax Adjustments for: Depreciation and amortization Provision for losses on accounts receivable Gain on sale of facility Increase in trade receivables Decrease in inventories

$
3,500,000

125,000 20,000 (65,000) (250,000) 325,000

Decrease in trade payables

Interest paid Income taxes paid Net LGDcash Groupflows from operating activities
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(50,000)
(150,000) (350,000) 3,105,000 21/04/2013

Cash flows from investing activities

Purchase of property, plant, and equipment Proceeds from sale of equipment Net cash flows from investing activities

$
(500,000) 35,000

(465,000)

Cash flows from financing activities Proceeds from issue of common stock Proceeds from issuance of long-term debt Dividends paid Net cash flows from financing activities 150,000 175,000 (45,000) 280,000

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period LGD Group 23 Cash and cash equivalents at end of period

2,920,000
2,080,000 $5,000,000
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* The expense and revenue

wont be recorded till cash goes in or out.

* The expense and revenue

will be recorded as soon as the expense is incurred or sales is made

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* Over the entire life of the business, the total income

will be the same.

* The advantages of each method are the

disadvantages of the other one.

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* Advantages
* Provide the actual picture of the cash on hand * Better comparison of results of different companies * Satisfies the needs of the users better * Forecasting is easier * Can reduce tax for some periods when the cash is not
actually paid

* Disadvantages
* Misleading the real situation of the business in term of
revenue and expense
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* Advantages
* Match revenue and expense, provide a better
understanding for users of the current situation of business in term of profitability

* Disadvantages
* Cash tracking cannot be seen clearly * Company can have a lot revenue but short in cash * Too much on credit sales can result in irrecoverable
debts

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* Smaller companies tend to choose cash basis, since it

deals with daily transactions rather than on credit. The method is easier to prepare and the situation of the business can have high accuracy

* Companies with over $5 million gross receipts have to

use accrual accounting. Nevertheless, bigger companies tend to deal with credit transactions more often; and the accrual basis can be used to compare periods to periods actual sales and expenses

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Thanks for liste

LGD Group

Questions?
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