Cash Flow by siratiq

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									STATEMENT of CASH FLOWS
Atiq ur Rahman

WHY WE NEED IT?
• To check the liquidity • To Check the ability of the entity to generate positive future Cash Flows • To check the ability to meet its obligations • To establish the needs of external financing • To know the sources and application of funds

WHY WE NEED IT?
So many other uses and reasons but one Practical need in the environment of Pakistan is to answer the question ….. Why there is difference between

Net Income

Cash in Hand

• Two Methods are known
– Direct Method – Indirect Method

IAS 7 recommends direct method but allows indirect also Practically most of the accountants use indirect method

STATEMENT of CASH FLOWS
• Normal Shape:
RS Cash flows from operating activities Cash flows from investing activities 100 -20

Cash flows from financing activities
Net Increase / (Decrease) in Cash Cash and Cash Equivalents Opening Balance Cash and Cash Equivalents Closing Balance

30
110 80 190

CLASSIFICATION of CASH FLOWS
• Cash from Operating Activities • Cash from Investing Activities • Cash from Financing Activities

CLASSIFICATION of CASH FLOWS
• Cash from Operating Activities
What we include in this portion of Statement of Cash Flow ? Cash effects of Revenue and Expenses Transactions Or Cash effect of transactions reported in Income Statement Please understand the classification now, this is the key to start cash flows Wakeup!

CLASSIFICATION of CASH FLOWS
• Cash from Investing Activities
What we include in this portion of Statement of Cash Flow ? Cash effects of Acquisition and Disposal of non-current assets And Other Investments not included in the Cash and Cash Equivalents

CLASSIFICATION of CASH FLOWS
• Cash from Financing Activities
What we include in this portion of Statement of Cash Flow ? Cash effects of the activities that result in changes in the size and composition of equity capital and borrowings

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000

If the amount of loan increases, it means It is clear that both Rs 21,000 and Rs 35,000 More cash is received, hence positive are Cash Inflows. Think! Cash Flow Now decide where to place these figures in: There are two activities: Increase in Loan / Debt Rs 21,000 1 Operating Activities If the amount of equity increases, it means 2 Investing Activities & More cash is received, hence positive Increase in Financing Activities 35,000 3 Equity / Capital Rs Cash Flow again

STOP

See How It fits In…. Cash Flow Statement

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Cash flows from Operating Activities

First Prepare a Blank Format like this
Rupees Rupees

Cash flows from Investing Activities

Cash flows from Financing Activities

Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000 Where to put these figures?

Investing Activities

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000 Where to put these figures?

Investing Activities

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Rupees Cash flows from Operating Activities Rupees

Cash flows from Investing Activities

Cash flows from Financing Activities Cash from Capital (Owner’s Equity) 35,000

Proceeds from Medium-Term Loan

21,000

Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000

Star purchased non-current assets of Rs 21,000.

Lets add some more transactions in our example……..

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Rupees Cash flows from Operating Activities Rupees

Cash flows from Investing Activities Purchase of Non-Current Assets (21,000)

Cash flows from Financing Activities Cash from Capital (Owner’s Equity) 35,000

Proceeds from Medium-Term Loan

21,000

Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000 Star purchased non-current assets of Rs 21,000. During the year the following transactions took place (a) Purchases from suppliers were Rs 19,500 of which Rs 2,550 was unpaid at the year end

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Rupees Cash flows from Operating Activities Cash paid to suppliers (19,500 – 2,550) (16,950) Rupees

Cash flows from Investing Activities Purchase of Non-Current Assets (21,000)

Cash flows from Financing Activities Cash from Capital (Owner’s Equity) 35,000

Proceeds from Medium-Term Loan

21,000

Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000 Star purchased non-current assets of Rs 21,000. During the year the following transactions took place (a) Purchases from suppliers were Rs 19,500 of which Rs 2,550 was unpaid at the year end (b) Wages and salaries amounted to Rs 10,500 of which Rs 750 was unpaid at the year end

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Rupees Cash flows from Operating Activities Cash paid to suppliers (19,500 – 2,550) (16,950) Rupees

Cash paid to and on behalf of employees (10,500-750)

(9,750)

Cash flows from Investing Activities Purchase of Non-Current Assets (21,000)

Cash flows from Financing Activities Cash from Capital (Owner’s Equity) 35,000

Proceeds from Medium-Term Loan

21,000

Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000 Star purchased non-current assets of Rs 21,000. During the year the following transactions took place (a) Purchases from suppliers were Rs 19,500 of which Rs 2,550 was unpaid at the year end (b) Wages and salaries amounted to Rs 10,500 of which Rs 750 was unpaid at the year end (c) Interest on loan Rs 2,100 was fully paid and repayment of loan Rs 5,250 was made

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Rupees Cash flows from Operating Activities Cash paid to suppliers (19,500 – 2,550) (16,950) Rupees

Cash paid to and on behalf of employees (10,500-750)
Interest Paid Cash flows from Investing Activities Purchase of Non-Current Assets

(9,750)
(2,100)

(21,000)

Cash flows from Financing Activities Cash from Capital (Owner’s Equity) 35,000

Proceeds from Medium-Term Loan
Repayment of Medium Term Loan Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

21,000
(5,250)

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000 Star purchased non-current assets of Rs 21,000. During the year the following transactions took place (a) Purchases from suppliers were Rs 19,500 of which Rs 2,550 was unpaid at the year end (b) Wages and salaries amounted to Rs 10,500 of which Rs 750 was unpaid at the year end (c) Interest on loan Rs 2,100 was fully paid and repayment of loan Rs 5,250 was made (d) Sales revenue was Rs 29,400, including Rs 900 receivables at the year end

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Rupees Cash flows from Operating Activities Cash received from customers (29,400 – 900) Cash paid to suppliers (19,500 – 2,550) 28,500 (16,950) Rupees

Cash paid to and on behalf of employees (10,500-750)
Interest Paid Cash flows from Investing Activities Purchase of Non-Current Assets

(9,750)
(2,100)

(21,000)

Cash flows from Financing Activities Cash from Capital (Owner’s Equity) 35,000

Proceeds from Medium-Term Loan
Repayment of Medium Term Loan Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

21,000
(5,250)

PREPARING CASH FLOWS
• Example M/S Star Traders
Mr. Khan started trade business in the name of M/S Star Traders with a medium term loan of Rs 21,000 his own investment Rs 35,000 Star purchased non-current assets of Rs 21,000. During the year the following transactions took place (a) Purchases from suppliers were Rs 19,500 of which Rs 2,550 was unpaid at the year end (b) Wages and salaries amounted to Rs 10,500 of which Rs 750 was unpaid at the year end (c) Interest on loan Rs 2,100 was fully paid and repayment of loan Rs 5,250 was made (d) Sales revenue was Rs 29,400, including Rs 900 receivables at the year end (e) Interest received on Bank Account Rs 75

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Rupees Cash flows from Operating Activities Cash received from customers (29,400 – 900) Cash paid to suppliers (19,500 – 2,550) 28,500 (16,950) Rupees

Cash paid to and on behalf of employees (10,500-750)
Interest Paid Cash flows from Investing Activities Purchase of Non-Current Assets

(9,750)
(2,100)

(21,000)

Interest received

75

Cash flows from Financing Activities Cash from Capital (Owner’s Equity) 35,000

Proceeds from Medium-Term Loan
Repayment of Medium Term Loan Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

21,000
(5,250)

Star Traders Statement of Cash Flows For the year ended December 31, 2008
Cash flows from Operating Activities Cash received from customers (29,400 – 900) Cash paid to suppliers (19,500 – 2,550)

Now this is the final shape
Rupees 28,500 (16,950) Rupees

Cash paid to and on behalf of employees (10,500-750)
Interest Paid Net Cash Used in Operating Activities Cash flows from Investing Activities Purchase of Non-Current Assets

(9,750)
(2,100) (300) (21,000)

Interest received
Net Cash Used in Investing Activities Cash flows from Financing Activities Cash from Capital (Owner’s Equity) Proceeds from Medium-Term Loan

75
(20,925) 35,000 21,000

Repayment of Medium Term Loan
Net Cash from Financing Activities Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents at 1st January 2008 Cash and Cash Equivalents at 31st December 2008

(5,250)
50,750 29,525 29,525

STATEMENT of CASH FLOWS
Resources for Students
Chapter 13 of your text book http://www.docstoc.com/profile/siratiq Search “Atiqmardan” on Youtube and find videos Email: siratiq@yahoo.com


								
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