Study unit 7 FAC 1601 Main objective and

Study unit 7 FAC 1601

� Main objective and advantages � Relationship with other financial statements � Identification of non-cash entries � Format Cash flows from operating activities Direct or indirect method Items disclosed after cash generated from or used in operations Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents

� Main objective Disclose how cash and cash equivalents are generated and managed. � Advantages Enables user to evaluate Changes in net assets Ability of business to affect timing & amounts of cash flow Financial structure of business Detect imminent financial problems

� Cash flows from operating activities � Cash generated from/(used in) operations Statement of p/l and other comprehensive income All items that determine profit for the year Excluding � Non-cash items � Items disclosed later � Operating activity items to be disclosed after cash generated from/(used in) operations SPLOCI SOCE (Statement of changes in equity) Other income Finance income Income tax expense Drawings Distributions to members SFP (Statement of financial position) Current assets (Equity held for trading)

� Investing SFP Non-current assets � Financing SFP activities Total equity Non-current liabilities Current liabilities � Cash and SFP activities cash equivalents Current assets � Bank, petty cash etc Current liabilities � Overdraft etc.

� Income recorded, cash not received � Income recorded, cash received in prior period � � � � Prepaid expenses – prior period Prepaid expenses Assets purchased on credit Credit sale of asset Profit/loss on sale of asset Revaluation of non-current assets Depreciation NRV of current assets � Credit purchases and other accrued expenses Expenses recorded, paid in prior period � Income received in advance – prior period Income received in advance Expense recorded, not paid � Credit sales and other accrued income Creation/ adjustment of allowance for credit losses Settlement discount granted/received

� Cash receipts from customers Determine income items (SPLOCI) Adjust for non-cash items (SFP) + Income in arrears (Beg) - Income received in advance (Beg) - Income in arrears (End) + Income received in advance (End) � Cash paid to suppliers and employees Identify expense items (SPLOCI) Adjust for non-cash items (SFP) + Accrued expenses (Beg) - Prepaid expenses (Beg) - Accrued expenses (End) + Prepaid expenses (End)

Entity name Statement of cash flows for the year ended … R CASH FLOWS FROM OPERATING ACTIVITIES Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations R

CASH GENERATED FROM/(USED IN) OPERATIONS: INDIRECT � Start with � Adjust for non-cash items � Depreciation etc. Adjust for items disclosed after the cash generated from/(used in) operations � Profit for the year (Sole proprietors & partnerships), or Profit before tax According to format of statement Dividends received, interest paid, income tax paid, drawings, distributions to members and proceeds from sale of listed shares Incorporate difference between Opening & closing balances of Current assets � Trade debtors & inventory Current liabilities � Trade creditors

DISCLOSURE – PART 1 B (INDIRECT METHOD) Entity name Statement of cash flows for the year ended … R CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax Adjustments for: Interest paid Depreciation Dividend income Profit on sale of non-current asset (In)/Decrease in working capital (In)/Decrease in inventory (In)/Decrease in trade and other receivables In/(Decrease) in trade and other payables Cash generated from operations R

� SPLOCI & SOCE � Identify items and adjust for non-cash � Items Dividend income Interest income Finance costs Drawings Distributions paid to members Distribution to members (SOCNIM) + Distributions payable to members(OB-CB) Income tax paid Acquisition and proceeds of financial assets at fair value through profit or loss: Held for trading

� Non-current assets Difference between opening and closing balances � Additions � Disposals Adjusted for non-cash items � Depreciation � Revaluation � Profit/loss of sale of asset

� Funding instruments Equity Debt � Movement between opening and closing balances Members contributions Long-term loans � Adjusted for non-cash items Transfers to/from reserves

� Highly liquid instruments Maturity period < 3 months