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Summary FRK122 chapter 1
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FRK 122 chapter 1 Notes
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FRK 122CHAPTER 10- STATEMENT OF CASH
FLOW:
INTRODUCTION:
Statement of cash flows (SCF) forms part of the set of financial statements.
Other components (refer chapter 5) are:
1. SFP
2. SPL
3. SOCIE
4. Notes
SCF is based on cash flows, NOT accrued amounts.
Main purpose of SCF:
- To reflect cash receipts (inflows) and cash payments (outflows)
- To reconcile opening balance of cash & cash equivalents to closing
balance
SCF differs from the SFP and SPL that include accrued amounts
Important: use brackets to depict outflows in the SCF in answering question or
else you will lose marks!!!
Three main activities in a business that affect cash flows:
1. Cash flows from operating activities:
- Normal daily operating activities, for example:
- cash sales (inflow)
- cash paid to suppliers & employees (outflow)
, 2. Cash flows from investing activities:
- Investments made (outflow) or proceeds from selling investments
(inflow)
- Assets acquired (outflow) or assets sold (inflow)
3. Cash flows from financing activities:
- money borrowed (inflow) or loans repaid (outflow)
WHO ARE THE USERS OF THE SCF - par 10.2
Cash is King – people are interested in the cash flows as an indicator of overall
financial health!!!
1. Owners/shareholders/partners:
- if profits and cash are available this can justify drawings, bonusses or
dividends.
2. Management:
- can better understand cash flow management and whether borrowed
funds were utilised effectively.
3. Creditors/suppliers:
- they grant credit and incur risk, therefore they are interested in the cash
paying ability of a business.
4. Employees:
- expect better bonuses & salary increases when business does well.
- interested in stability of business indicated by cash position.
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