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Cash Flow Statement
UNIT 3 CH 12
| Question | Answer |
|---|---|
| basic function of all accounting reports: | Communicate financial info to the owner to assist decision making |
| Why is cash so important? | it is used to make payments that enable the business to function |
| Important to report both cash and profit | As they are different measures of performance, and there may be many possible reasons why a firm that is earning a profit can still suffer from a lack of cash |
| Function of a Statement of Receipts and Payments: | Acc report that details cash received and paid during a RP, and the change in the firm’s bank b over that period. *incr or decr in cash. |
| Layout of S of R and P: | Cash receipts, total of RHS _ Less cash payments, total on RHS _ Surplus (deficit) _ add BB at start (date) _ BB at end (date) |
| Cash surplus | An excess of cash receipts over cash payments, leading to an incr in BB |
| Cash deficit | An excess of cash payments over cash receipts, leading to decr. In BB |
| S of R and P is based on what? | Cash journals thus, surplus (deficit) = CRJ less CPJ |
| Why journals not source docs? | If info is taken directly from source docs it wouldn’t be classified or summarised in any way. Instead, S of R and P is based on the cash journals |
| state one reason why the owner might not be concerned about the firm’s Cash Position. | The bank balance at end (31 December 2015) is positive. |
| explain one reason why the owner should be concerned about the firm’s cash performance. | There is an excess of cash payments over cash receipts for the Reporting Period (a cash deficit), which has led to a decrease in the bank balance. If net cash flows from O are neg. Insufficient funds ot meet other cash requirements. |
| CFS Cash Flow Statement: | An acc report that details all cash inflows and outflows from Operating, Investing and Financing activities, and the overall change in the firm’s cash balance. |
| Operating activities | cash flows related to the firm’s day-to-day trading activities |
| Investing activities | cash flows relating to the purchase or sale of non-current assets |
| Financing activities | cash flows that are the result of changes in the firm’s financial structure. |
| Why it may be more beneficial to prepare a Cash Flow Statement than just a Statement of Receipts and Payments. | |
| how the preparation of a CFS can assist in decision-making. | by detailing the sources and uses of cash in a particular period. In particular, the owner would want to assess whether the business is generating enough cash from its OPERATING activities to fund its investing and financing activities. |
| Explain how the preparation of a CFS can assist in planning for the future. | By providing a basis for the next budget, the Cash Flow Statement will aid in the setting of targets for the future. |
| What subheading does interest go into? | Operations - it is a payment of an expense |
| Explain one reason why the owner might be concerned about the firm’s Net Cash Flows from Operations. | It is negative, which indicates that the firm is not generating enough cash from its operating activities to fund its investing and financing activities + be unable to meet its other payments without cont. from owner or external finance. |
| Discuss whether the huge cap contrib and loan receipt will have a positive or negative effect on its future cash activities. | |
| one way the owner might use this graph to aid decision-making | |
| Explain why COS is not reported in the CFS | COS is not reported as it is not a cash flow, but rather a stock flow; it records the cost price of stock rather than the cash received from the sale. |
| State one reason why the total of the Debtors Control column of the Cash Receipts Journal may not represent cash received from debtors. | The DC column represents the total amount by which debtors will decrease and, in most cases, this figure will comprise some cash, but also some discount expense. |
| Why is disc accounted for in CFS? | It’s not cash so it technically isn’t in the CFS but it is used to calc receipts from DC as it is the “absence of a cash flow” the amount DC did not pay |
| Show how receipts from debtors is calculated when discount expense has been recorded in the Cash Receipts Journal. | Receipts from debtors = Debtors Control (column total) – Discount Expense (column total) |
| Explain why the total of the Creditors Control column of the CPJ is not reported in the CFS | The Creditors Control column of the CPJ includes both the cash payments to creditors and the discount revenue, but only the cash paid should be reported in the CFS, |
| Identify the four GST items that may be reported in the CFS | GST received + GST refund + GST paid + GST settlement |
| Identify the three main reasons why the change in a firm’s Cash Position may be different from its profit over the same period. | Some cash items do not affect profit. + Some profit items do not affect cash. + Some items affect both cash and profit, but by differing amounts. |
| Identify two cash inflows that are not R. Explain the effect these items will have on both cash and Net Profit. | capital contribution + loan received = cash inflows that increase cash, but are not R and so have no effect on NP. |
| Identify three cash outflows that are not E. Explain the effect these items will have on both cash and Net Profit. | Cash drawings + loan repayments + cash payments for NCA + GST paid incl GST settlement = cash outflows that decrease cash, but are not E so have no effect on NP |
| Explain how a stock gain may be the reason why a firm can earn a profit, despite suffering a cash deficit. | Stock gain is a R that increases NP, but is not a cash inflow (it represents a gain of stock) so has no effect on Bank. |
| Identify three items that will be reported as expenses in the Income Statement, but will not be reported as cash outflows in the CFS | Stock loss + bad debts + depr. |
| Suggestions why owner may make cap contr: | Keep bank balance out of OD, help fund purchase of NCA, |
| GST received + GST refund are reported separately in CFS | Received from different entities (customers v. ATO) _ Recorded in different columns in the Cash Receipts Journal (GST v. Sundries) _ May relate to different Reporting Periods (current v. previous) |
| Classification of purchase of stock: | Excluded as it doesn’t relate to NCA stock is a CA, so cash purchases is an Operating outflow (relates to day-to-day trading activities) |
| Why GST paid on NCA is not I activity: | All GST cash flows are reported as O activities as all GST paid to suppliers – whether for CA or NCA– is recorded in the GST column of the CPJ. (GST settlement/refund is a function of by day-to-day trading activities.) |
| Explain how net net cash flows from I activities can lead to reduction in NP | Increases NCA - depreciaiton E will increase - decreasing NP |
| Why is GST paid greater than 10% of Net Cash flows from I activities? | It includes GST on (some) Operating outflows. |
| Possible sources of finance for purchase of NCA | Existing cash reserves/overdraft + Net Cash Flows from Operations + Loan/Capital contribution |
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