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Week 5 Measuring and Reporting Cash Flows ACCY111 2013 FOR BLACKBOARD

Related to revenues earned less expenses incurred

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related to revenues earned less expenses incurred based on accrual accounting Cash flow statement – identifies all cash receipts and cash payments for the period. Is based on cash, not accrual accounting
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Differences between the three external financial reports Balance sheet at the start of the accounting period Owners’ Claim (Equity) Cash Balance sheet at the end of the accounting period Owners’ Claim (Equity) Cash Income statement & Statement of Changes in Equity Cash flow statement Figure 5.1 – The relationship between the balance sheet, the income statement and the cash flow statement
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Cash What is cash in the statement of cash flows? Isn’t that obvious …. …. . Yes, but………..
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Cash and Cash Equivalents NZ IAS 7 ‘Statement of Cash Flows’ incorporates a broad concept of cash, including cash equivalents Cash represents ‘cash on hand’ and ‘demand deposits’ Cash equivalents represent short-term, highly liquid investments that can readily be converted to a fixed amount of cash Examples include: cash on hand, cash deposits at the bank, bank overdrafts and short-term investments .
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The Cash Flow Statement The cash flow statement is basically an analysis of the business’ cash movements over the period concerned All payments of a particular type are added together to give just one amount, which appears in the statement The net total of the statement is the net increase or decrease in cash of the business over the period
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What does a cash flow statement look like? A long list of cash items? No – broken down into the 3 key activities in a business which have cash flows associated with them.
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Establish goals and strategies Obtain financing Invest Operate the business The four business activities of an entity The statement of financial position The Income Statement
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Establish goals and strategies Obtain financing Invest Operate the business The Statement of Cash Flows CASH FLOWS from all 3 Activities The four business activities of an entity
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Components of the Cash Flow Statement The three sections of the cash flow statement are: Operating activities - represents the cash flows associated with the principal revenue-producing activities of the entity Investing activities - represents cash payments to acquire additional non-current assets , and cash receipts for disposal of such assets e.g. plant and machinery, shares etc Financing activities - deals with financing the business excluding short-term credit e.g. debt and equity sources, share issues, repayment of debt etc
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The Cash Flow Statement Format Net cash flows from operating activities Net cash flow from investing activities Net cash flow from financing activities Net increase or decrease in cash and cash equivalents over the period plus or minus plus or minus Figure 5.2 - Standard layout of the cash flow statement
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Non-cash Transactions Non-cash transactions are transactions that do not directly involve cash
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