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Accg105 Lecture week 11 2009S3 Cash Flow

Accg105 Lecture week 11 2009S3 Cash Flow - Lecture Week 11...

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Lecture Week 11 Accg105 Introductory Financial Accounting
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Topics to cover this week: Identifying the main purpose of the Statement of Cash Flows (SCF) Classifying activities Preparing an SCF using the direct method for operating cash flows Using cash flows to evaluate a company
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The purpose of the Statement of Cash Flows The Statement of Cash Flows provides information about cash receipts and payments. It also reconciles the beginning and ending cash balances for the period. The cash movements are classified according to the three major activities of the entity during a financial period.
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Classifying activities The three major activities are: 1. Operating Activities 2. Financing Activities 3. Investing Activities
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Classifying activities 1. Operating Activities These activities are related to earning revenues and incurring expenses, they are the main activities of the business. Examples of inflows are receipts from: the sale of goods or services interest (from deposits or loans to other entities) dividends (from equity investments)
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Classifying activities 1. Operating Activities (cont.) Examples of outflows are payments to: suppliers for inventory employees for services the government for taxes lenders for interest external parties for expenses
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Classifying activities Cash flows from these activities are regarded as very important because they represent the entity’s business operations. A high level and constant net inflow would generally indicate the entity’s capacity to generate cash in order to carry on as a going concern.
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Classifying activities 2. Investing Activities These activities are related to the buying and selling of the entity’s non- current assets, for example, land, buildings, shares and debentures in other entities. These assets are acquired primarily for use and not for sale.
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Classifying activities 2. Investing Activities (cont) Examples of inflows are receipts from: the sale of debt or equity instruments of other entities the collection of principal on loans to other entities the sale of properties, (used) plant and equipment
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Classifying activities 2. Investing Activities (cont)
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