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Week 5 Measuring and Reporting Cash Flows ACCY111 2013 FOR BLACKBOARD

Most relate to the operating activities section of

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Most relate to the ‘operating activities’ section of the cash flow statement and are linked to the difference between cash-based and accrual-based transactions Examples - depreciation , revaluations of assets, doubtful debts, accruals (receivables, inventory, prepayments, payables) etc Some relate to the ‘investing and financing activity’ section e.g. direct exchanges of items - such as shares for assets, non-current assets for reduction in debt etc
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Preparation of the Cash Flow Statement - an Overview Can be produced in two ways : 1. Independently analysing the cash receipts and cash payments for the period and allocating transactions to the different activities and categories 2. Reconstructing the income statement by tracking the changes in the balance sheet for the period and eliminating accrual transactions so that only cash transactions remain, forming the basis for preparing the cash flow statement Of the two approaches, the second is the one most often used in practice
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Preparation of the Cash Flow Statement Work out what is cash Identify all the movements in cash (as defined) and classify them as operating, investing or financing activities Put it all together in a statement, which also reconciles the opening and closing cash
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Preparation of the Cash Flow Statement - a Simple Example Refer to Example 5.1 on page 211 or 231 Deducing cash flows from operating activities 1. Calculate cash receipts from customers: Opening balance of accounts receivable 15 plus sales for the period 100 gives amount expected to receive during the period 115 less closing balance debtors (20) equals cash received from customers 95
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Preparation of the Cash Flow Statement - a Simple Example (cont’d) Refer to Example 5.1 on page 211 Deducing cash flows from operating activities 2. Calculate payments to creditors for inventory purchases: Opening balance of accounts payable 10 plus purchases of inventory for the period ? gives amount expected to pay during the period X less closing balance accounts payable (15) equals cash paid to accounts payable (creditors) X
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Preparation of the Cash Flow Statement - a Simple Example (cont’d) Refer to Example 5.1 on page 211 Deducing cash flows from operating activities 2. Calculating Purchases for the period: Opening inventory 22 plus purchases of inventory for the period ? Equals the amount available for sale 90 less closing inventory (30) equals cost of sales 60
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Preparation of the Cash Flow Statement - a Simple Example (cont’d) Refer to Example 5.1 on page 211 Deducing cash flows from operating activities 2. Calculating Purchases for the period: Opening inventory 22 plus purchases of inventory for the period (DERIVED) 68 Equals the amount available for sale 90 less closing inventory (30) equals cost of sales 60
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Preparation of the Cash Flow Statement - a Simple Example (cont’d) Refer to Example 5.1 on page 211 Deducing cash flows from operating activities 2. Calculate payments to creditors for inventory purchases: Opening balance of accounts payable 10 plus purchases of inventory for the period 68
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