CASHFLOW STATEMENT

INSTRUCTOR
Ms. Juweriya Zafar
 Definition:It is a statement which shows the cash situation as
where exactly the cash has come from during the year, and
exactly where it has been used up.
Profit and liquidity not directly related:
Many people think that if we are making profits then there should
be no shortage of cash. For example
1. A sole trader is making $40,000 a year profits and however, his
drawings have been over $60,000 a year for some time.
2. If a company’s policy of Accounts Receivable is over-generous.
3. A partnership whose products will not be on the market for quite
a long time has invested in some very expensive machinery. A
lot of money has been spent now but no income will result in
near future.
So businesses can easily run out of cash. And cashflow
statement can help to signal the development of such problems.
CASH COMES FROM CASH GOES TO

1. Profits 1. Losses

2. Sales of Fixed Assets 2. Purchase of Fixed Asset

3. Decrease in Stock 3. Increase in Stock

4. Decrease in A/R 4. Increase in A/R

5. Capital Invested 5. Drawings / Dividends

6. Loans received 6. Loans Repaid

7. Increase in A/P 7. Decrease in A/P

 Statement of Cash Flows
For the year ended December 31, 2006

Cash Flows from Operating Activities $ $

Net Income
ADJUSTMENTS
Depreciation Expense
LESS: Gain on sale of Fixed Asset
LESS: Increase in Accounts Receivable
Decrease in unearned rent revenue
Decrease in inventories
Increase in Accounts Payable
Increase in Prepaid Expenses
Increase in Income Tax Payable
NET CASH PROVIDED BY OPERATING ACTIVITIES
Cash Flows from Investing Activities
Purchase of Building
NET CASH USED IN INVESTING ACTIVITIES
Cash Flows from Financing Activities $ $
Borrowing from Banks
LESS: Payment of Cash Dividends
NET CASH USED IN FINANCING ACTIVITIES

Net Increase/ Decrease in Cash and Cash

Equivalents
Cash and Cash Equivalents, January 01, 2006
Cash and Cash Equivalents, December 31, 2006
 Problem Set
John Flynn
Balance Sheets as at 31 Dec
2008 2009
Fixed Assets
Buildings 5000 5000
Fixtures less dep 1800 2000
Van less Dep. 2890 5470
Current Assets
Stocks 3000 8410
Accounts Receivable 4860 5970
Cash 3450 150
TOTAL ASSETS 21000 27000
Current Liabilities
Accounts Payable 2900 2040
Bank Overdraft 1260
Long term Loan (2000) (5000)
Financed By:
Capital balance at Jan 01 15500 16100
Add Net profit 6800 7900
Cash Invested 2500
Less Drawings (6200) (7800)
TOTAL CAPITAL + LIABILITIES 21000 27000

FIXTURES BOUGHT IN 2009 COST $400 WHILST A VAN WAS BOUGHT FOR $4000