...Cashflow Statement Paper Teresita Napalan ACC/421 April 25, 2013 Stephen Russell The statement of cash flows is an essential financial statement in the accounting industry. It is one of four principal financial statements required by GAAP. The primary purpose of the statement of cash flows is to provide relevant information about the cash receipts and cash payments of a business during a period. The statement indicates why cash (including short-term investments that are equivalent to cash) changed during the period by reporting net cash provided or used by operating activities, investing activities, and financing activities. This paper will discuss the direct method and indirect method of the statement of cash flows and will also discuss the different sections for the statement of cash flows and how it assists a variety of different users. The statement of cash flows reports cash flows in the following categories: Operating activities which are transactions which affect net income, Investing activities which are transactions that affect investments in fixed assets such as property, plant and equipment, and finally Financing activities which affect the equity and debt of the business. The user assisted most by the operating activities would most likely be accounts payable. This section of the cash flow statement includes cash payments such as inventory, payroll, taxes, interest utilities and rent. The net amount of cash provided (or used) by operating activities is the key figure...
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...a) Functions or uses of the cash flow statement: * Provides a clear picture of an aspect of the entity’s performance and position that is not so clear in reviewing the P/L and B/S. ie * viability of core operations * payments to suppliers, creditors * collections on debtors * dividends, interest and other payments * payments for NC assets * access to cash, likely access in the future * profit does not equal cash, so adds another aspect to the information we can obtain about an entity * generally, users have an interest in cash flow performance, as this generally gives some indication of expected return (ie. dividends) * the importance of cash for survival is known, hence the CFS gives some indication of the future prospects for the firm * CFS gives some indication of the firm’s command over economic resources and how that command was exercised * Helps management to discharge its accountability function, by indicating how it has used the cash under its control. b) reasons for the reconciliation: * profit does not equal cash flow, hence the information content of the reconciliation * provides an explanation of some *(non-cash) aspects of profit such as: impact of depreciation, credit sales etc, * cash may be the ‘lifeblood’ of the company, but CFS should supplement, not substitute for the P/L. * May, to some extent assist users to understand that there is a relationship between profit and cash...
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...Cash Flow Statement Definitions A financial statement that reflects the inflow of revenue verses the outflow of expenses resulting from operating, investing and financing activities during a specific time period. Cash flow statements and projections express a business's results or plans in terms of cash in and out of the business, without adjusting for accrued revenues and expenses. The cash flow statement doesn't show whether the business will be profitable, but it does show the cash position of the business at any given point in time by measuring revenue against outlays. Cash flow is determined by looking at three components by which cash enters and leaves a company: core operations, investing and financing. Operations- Measuring the cash inflows and outflows caused by core business operations, the operations component of cash flow reflects how much cash is generated from a company's products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations. Investing- Investing activities focuses on the purchase of the long-term assets a company needs in order to make and sell its products, and the selling of any long-term assets. It reports changes in equipment, assets or investments relate to cash from investing. Financing- Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the...
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...matter creditors, stock shares, managers or other information user, focus on the cash flow and the creating cash capacity of enterprise. The statement of cash flow has become one of the main financial statements of every enterprise. Because the statement of cash flow demonstrates the ability of creating net cash flow of enterprises and reveals the liquidity of enterprise’s asset more clearly, helping the users provide object evaluation of overall financial situation. However, a series of simple initial data which statement of cash flow offered still not helpful for decision directly. Therefore, according to the analysis of cash flow statement, which can understand the company’s money flows in, flow out and balance situation, realize the main methods of cash flow out and where enterprises cash flows in. The cash flow statement is intended to provide information on a firm's liquidity or solvency, in order to provide a clear understanding of a company's financial resources at special period. Through the problems found out from financial aspect, promotes the manager understand the operating situation more sufficiently, thus offer the abundant, effective basis for its science decision. TThe cash flow statement has three sections:Operating, Investing and Finance. The cash flow statement was originally known as the flow funds statement or statement of changes in financial position. Operating Activities The operating activities are related to the incoming and outgoing cash that coming...
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...In order to determine how income statements and statements of cash flows influence business decisions, it is important to know the definition of the two. Income Statements are defined as the summaries of an entity’s revenues, expenses, gains, and losses for a period of time and thereby reports the entity’s results of operations for that period of time. It determines if an entity operates at a profit during a certain time frame, and reports revenues, expenses, gains, and losses. The Statement of Cash Flows is a financial statement that explains the change of cash flows during a fiscal period. This includes operating cost, investments, and financial activities of an entity. Its purpose is to identify the sources and uses of cash throughout a fiscal period, and report all activities involving operations, investments, and financing. Both statements are very important in making long term and short term decisions in business. Income statements are important in determining these decisions because they allow investors to determine their role in an entity’s success by viewing its operating potential, management to determine decisions within the entity dealing with material costs, sales strategies, and consumer response to those changes, and CEO’s to view revenue reports, expenses of operating costs, and the gains and losses of the entity during a defined fiscal period before making major decisions on the direction of that entity. Statement of cash flow allows CEO’s, Investors, and management...
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...The Income Statement. It shows a business’s sources of income as well as the expenses it has incurred over a given time period that is being examined. The difference between the total incomes of the business and its expenses gives its net profit. The main aim of a business is to maximize its profit. The importance of an income statement therefore is to help in making an analysis of how the different decisions the business makes affect its level of profitability. The Cash flow Statement. It is a record of the amount of cash flowing in and out of a business over a given time period being examined. The statement is important to a business since it shows the ease by which a business can create an adequate level of liquidity or cash to finance its running operations. It also helps determine the amount of money available at the end of the business’s financial period which may be used for a subsequent period’s investment. Advantages of the income and cash flow statements. One advantages of the income and cash flow statement they are used to measure the level of performance of the business. Increased levels of profit derived from the income statement and an increased level of cash flows as shown by the cash flow statement are taken to mean that the business is performing well. The vice versa is also true. Another advantage is that both statements are also used by the management to evaluate the trend of the business by comparing its performance in the current financial...
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...Question #6 A. Briefly state how the Income Statement is different from the Cash Flow Statement. Give examples of decisions that can be made from the information provided by each of these statements? -The income statement shows how much revenue a company has earned over a period of time, which is usually for a year. The income statement also reports the costs and expenses associated with earning the revenue. At the bottom of the income statement it shows the net inome, which shows the actual earnings after expenses, taxes, etc are taken out. This can be a net profit or net loss, depending on how the company performed that year. The cash flow statement reports a company’s inflows and outflows of cash. The income statement tells whether or not the company made a profit and the statement of cash flows tells you whether the company generated cash. The statement of cash flows is the more important of the two because with negative cash flows it makes it nearly impossible to pay off your debt. It is possible to have a positive net income, with negative cash flows. -A manager can use the income statement to analyze how much revenue is being lost due to expenses. Expenses are necessary in every business, but there are ways to manage them to save money. It also allows management and investors to decide if the company wants to expand into different markets or create new products. If they see sales are consistently increasing year over year, then it may be a good time...
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...The Four Basic Financial Statements By Stain Baba [Course] [Instructor] [Due Date] The Four Basic Financial Statements Managers of businesses can be considered as stewards who have been entrusted with the responsibility of the day to day running of business activities. In this regard, they are expected to report back to those who appointed them and to other relevant stakeholders on how well they have executed their assigned task(s). One of the established ways of reporting to owners of the company and other stakeholders is through the use of financial statements, which can be used to ascertain the level of effectiveness and efficiency with which the managers have handled the affairs of the company and at the same time, give a concise view of the financial health of the company. Financial statements are records of the financial activities of the of a business enterprise or any other entity (Kimmel, Weygandt & Kieso, 2010). The aim of a preparing a financial statement is to track and present the financial activities of a business entity in a way that enables users of such records to as much as possible, understand the financial position of the of the company at any given time.Financial statements include; the balance sheet, income statement, cashflow statement and statements of shareholders equity. These four set of financial statements are considered to be the basic financial statements typically produced by profit making companies (U.S...
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...ASSIGMENT : MANAGEMENT ACCOUNTING 1. Financial statements are used to show the (financial) performance of the company and also used as proof of company performance when sourcing for finance from banks, sourcing for finance /funds from (potential) investors. The financial statements are also used for legal compliance dictated from Government financial regulations and standards particularly for Public Limited Companies. Internally within the company, financial statements can be used for control and tracking resources by senior management, shareholders etc. 2. When a company’s assets increases for one period to the next, the liabilities and equity will also increase by the same amount. Also total assets must equal total equity and liabilities because for a business to acquire assets, it must raise the funds from somewhere. As a result, changes that happen in the assets must be compensated elsewhere. 3. No. The capital base for the companies might be different. By just looking at the profits, it does not show how much the companies are financing themselves and also profits does not show the cash flows of the company, i.e. whether the company is really performing well. Also, profits does not show the asset structure and equity performance e.g. earnings per share, dividends per share etc which is also very crucial for investment or financial performance analysis. 4. Other ways of comparing company performance is by using financial ratios and by looking at...
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...relationship between the shareholders, who are the owners of the business, and the business and show as a special liability. Relevance: This requires that the figures are meaningful and useful. Objectivity (Reliability): This requires that the information is objective and can be trusted. Feasibility: This means that the information can be collected easily and economically. Duality The duality concept is closely related to the system of double entry book-keeping used for recording the financial information upon which the financial statements are based. Because the duality concept requires the clear identification of both the assets of a business and the claims of different parties on those assets in the balance sheet, it is consistent with the criteria of relevance to users of accounting information. The duality concept also provides a “check” (through the balancing requirement) on the reliability of data provided in the main financial statements. It is therefore broadly consistent with the three criteria of relevance, objectivity and feasibility. Marketable securities: Short term investments – shares or money market deposits Overdraft – Short term bank borrowings Debentures – Loans issued in small denominations but in large numbers Called up share capital – Face value of money put in by ordinary shareholders Share premium account – excess over par value Revaluation reserve – Revaluation of fixed assets...
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...Basis of Depreciation 1 Basis of Depreciation A Comparison Between Generally Accepted Accounting Principles (GAAP) and Income Tax Basis Basis of Depreciation 2 Abstract The basic concept of depreciation is based on the assumption that most property, plant, and equipment assets or depreciable assets have a useful life over which they are consumed. The portion of these depreciable assets consumed through usage or obsolescence is what accountant refers to as depreciation. The measurement of depreciation according to Generally Accepted Accounting Principles (GAAP) follow the “cost principle” and “matching principle”; in that depreciable assets cost should be valued at their original or historical cost, and that depreciation expense is recognized in the same period the benefit was derived from the consumption of the said asset. On the other hand, Income Tax Basis follows the concept of “recovery period”; in that businesses recover the cost of the depreciable assets faster because the period (useful life) is accelerated. This paper will compare and contrast Income Tax Basis for depreciation and GAAP basis for depreciation. Basis of Depreciation ...
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...EFB201 Financial Markets Learning Guide EFB201 Learning Guide 1 Workload Expectations The unit has a two-‐hour lecture with a one-‐hour workshop/tutorial each week. QUT Guidelines are that “Eight to 10 hours per unit per week should be spent outside the classroom reading and working on assignments and tutorial tasks.” This unit covers a large amount of material commensurate with the workload expectations described above. The lectures are an integral part of the course materials and will contain spoken or written material that is additional to that in the textbook and set readings. Conversely, not all the set textbook or other readings will be covered in the lectures. In addition, you will be expected to do your own research in respect of particular topics, and this also forms part of the unit materials. All unit material is assessable; in other words, it is not possible to identify...
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...783) 919,689 1,108,048,602 0 Total Assets Liabilities Australian Dollars Cash Interest on Cash Balances Administration Payable Commercial Paper Domestic Bonds - 15/03/2005 Domestic Bonds - 15/03/2007 Domestic Bonds - 15/03/2009 Domestic Bonds - 15/03/2014 Swaps Variation Margin - 3 Year Contract Variation Margin - 10 Year Contract Brokerage due Total Australian Dollars United States Dollars Euro Bonds - 15/03/2007 Euro Bonds - 15/03/2014 Swaps Forwards 0 Total United States Dollars Euros Euro Bonds - 15/03/2009 Swaps Forwards 14,838,797 14,838,797 Total Euros 0 0 14,838,797 2,579,726 2,000,000 579,726 2,579,726 Total Liabilities Net Assets Equity Total Equity 2,579,726 0 Central Treasury Profit & Loss Statement for the period ending 14/06/2004 Consolidated Central Treasury 25,205 6,662,300 0 0 1,386,301 8,048,602 6,662,300 1,386,301 0 0 831,781 0 Portfolio Revenue Interest on Cash Balances Interest from Customer Loans Investment Income (INVCP3M) Foreign Exchange Gains Cash Related Incompetency Administration...
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...Daz Ware Gaz Price Justine Williams Managing Financial Principles and Techniques Assignment 1 1. Explain what documents and statements you have consulted. The Group Income Statement (P&L) and the Group Balance sheet were consulted. The following information was extracted. A companies profit and loss account shows revenue, expenditure and the profit or loss resulting in operations for a given financial year. Item 2012 £ M 2011 £M Sales (Revenue) 64539 60455 Cost of Sales (59278) (55330) Gross Profit 5261 5125 Overheads Expenses (1652) (1640) Property 376 432 Net Profit 3985 3917 Balance Sheet for Tescos – A financial statement showing measures of the assets, liability and owners equity or net worth of a business firm or non-profit organization as of a specific moment in time. 2012 £ M 2011 £ M Fixed Assets 37918 35167 Current Assets Adjusted for stock 12353 11608 Current Liabilities (19180) (17731) Net Assets 31091 29044 2. Use relevant ratios to measure the performance of the target company. Explain why you have used these measures and what the results mean in terms of strengths and weaknesses. Ratios 2012 2011 Current Ratio: Current Assets 12353 11608 Current Liabilities 19180 17731 = 0.64 : 1 = 0.65 : 1 The current ratio should be 1:1 in an ideal world but it is acceptable to be lower for a cash rich company. This shows that the current ratio is marginally...
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...A Basic guide to finance and accounting This article will explain the importance of finance and accounting in a start-up business and also demonstrate the means that business’ can source money internally and externally. The start-up idea I will be relating this too is a car dealership in Yorkshire Mikes wheels. Internal finance is money that can be sourced from inside the business. The business in question is a small start-up business so the sources of finance are limited in terms of selling assets to free up cash; the premises are fixed assets as they are vital to the business. The cars are current assets as it is easier to turn them into cash therefore due to the nature Mikes Wheels selling cars is the objective. Profits retained from start-up businesses are usually minimal, as an owner personal savings and input are the main internal source unless a bank loan is secured. An external source of finance is the phrase used to describe funds acquired outside the business, usually used in contrast to internal sources of finance the finance is acquired from a party separate to the business e.g a) Owners who invest money in the business over a long period of time. The owner of Mikes Wheels will find himself needing to inject money into the business for a couple of years as Mikes business grows. b) Loans from a bank or from family and friends. c) Debentures are loans made to a company. d) A mortgage, which is a special type of loan for buying property where monthly payments...
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