Lesson 5 Cash Flow Statement

1. Lesson 5 Cash Flow Statement Li, Jialong 2011-2-26

2. Cash Flow • A business must generate cash flow surpluses in order to pay its bills when they come due. • Net cash flow = Money In – Money Out = Cash Receipts – Cash Payments • Cash flow is NOT PROFIT as Revenue and expenses can be made on credit terms and paid at a later date.

3. Profit vs. Cash flow • IN profit not cash flow are:  Credit sales  Credit purchases  Depreciation (a book entry)  Accruals  Payables and receivables  GST Goods and Services Tax • IN cash flow not in profit is: • Drawings and dividends • The purchase of long term assets • Loan repayments • GST payments and receipts

4. Cash flow • In a single entry cash recording system, the relevant financial records required for preparing a statement of cash flows will be the cashbooks of the business. • The cash position of the business at the end of the period can be determined by referring to the bank reconciliation statement.

5. What does a Cash Flow Statement look like? Annual Cash Flow Statement Format

6. The cash Flow Statement is divided into three sections. • Operating Investing Financing • Operating Section This section contains the receipts and payments for the normal running operations of the business. E.g. Sales and expenses • Investing Section This section contains the receipts and payments that are generated from buying and selling noncurrent assets. E.g. Buying or selling equipment • Financing Section This section contains the receipts and payments that are generated from Capital and loans and Drawings. E.g. Raising capital and a new loan or repaying a loan.

7. Review Questions • Definition and format of a Cash Flow Statement • Definition of Operating , Investing and Financing sections of a Cash Flow Statement • Explain how the Cash Flow links to the Balance Sheet through the Cash in the Bank

8. Exercises • Exercises 5.1 • Exercises 5.2

9. Reading and Resources • Student Notes and Readings Lesson 5

10. The End of Lesson 5