ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Cash flow statement

ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Learning Outcomes
• Appraise the purpose of developing cash flow statement in businesses.
• Analyse the different activities involved in the statement of cash flows.
• Recognize how changes in assets, liabilities and equity affects the
statement of cash flows .
• Interpret the statement of cash flows for business decisions making.
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Cash Flow Statement

• Statement recording the Inflows and Outflows of cash and cash
equivalents.
• Prepared to know the sources and applications of cash and cash
equivalents.
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Three Activities in Cash Flow Statement

ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• Décor furniture company has the following transactions in the month of October 2019.
I. Sale of old chairs Rs. 50,000
II. Borrowing of long – term loan from bank Rs. 100,000
III. Raising of equity share capital Rs. 50,000
IV. Purchase of welding machine Rs. 5,000.

• The total cash inflows and outflows in the business respectively are:
a) 200,000 and 150,000
b) 30,000 and 15,000
c) 200,000 and 5,000
d) 100,000 and 10,000
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Operating Activities
• ‘Primary’ or ‘main’ activities of the business.
• ‘Principal revenue generating’ activities of the business.

A company is in the business of Furniture making. The various operating

activities of its’ business will be:
• Purchase of Raw Material (Wood)
• Incurrence of manufacturing expenses (Payment of wages to labour)
• Sale of furniture
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Inflows and Outflows – Operating Activities

Outflow
Inflows
s
Cash from sales Cash payments to
of goods suppliers

Cash receipts
Cash payments to
from commission,
employees
royalties etc.

Income Tax
payments
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• Raymond India Ltd. Is having the following transactions in the past quarter of
2021.
I. Income tax payments Rs. 200,000
II. Payment made to suppliers Rs. 50,000
III. Cash received from royalties Rs. 50,000
• The total cash outflows from operating activities will be:
a) 300,000
b) 200,000
c) 100,000
d) 250,000
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Investing Activities
• Concerned with Purchase and Sale of long – term assets and
investments.

• A company is in the business of Furniture making. The various

investing activities of its’ business can be:
• Purchase of Machinery for converting wood into furniture
• Sale of Old typewriter
• Purchase of delivery vans for transporting furniture
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• A manufacturing company having the following transactions in the past quarter of
2021.
I. Purchase of machinery Rs. 400,000
II. Sale of old typewriter Rs. 100,000
III. Cash received from sales of goods Rs. 200,000
• The total cash inflows from investing activities will be:
a) 400,000
b) 100,000
c) 500,000
d) 700,000
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Financing Activities
• Relates to long – term funds or capital of the business.
• Activities that result in change in size and composition of owner’s
capital.
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Inflows and Outflows – Financing Activities

Inflows Outflows

Issue of Dividend
share capital paid

Raising of
long term Interest paid
loan

Raising of Repayment
debentures of loan
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• A manufacturing company having the following transactions in the past quarter
of 2021.
I. Raising of long-term loan Rs. 250,000
II. Dividend payment Rs. 150,000
III. Cash received from sales of machinery Rs. 200,000
• The total cash inflows from financing activities will be:
a) 250,000
b) 150,000
c) 450,000
d) 600,000
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• D – Mart has made the purchases of a truck which will be used in
transportation of grocery items to different places.

• This purchase of truck by D – Mart will be classified as:

a) Investing activity
b) Financing activity
c) Operating activity
d) None of the above
Analysis ofREPORTING,
ACCM506 – FINANCIAL cash flowSTATEMENTS AND ANALYSIS – I

Cash Flows from Cash Flows from Cash Flows from Explanation
Operating Investing Financing
Activities Activities Activities

Company is using:
a) cash generated
from operations
+ + + and
b) from sale of
assets and
c) from financing
to build up pile of
cash – highly liquid
company
Analysis ofREPORTING,
ACCM506 – FINANCIAL cash flows
STATEMENTS AND ANALYSIS – I

Cash Flows from Cash Flows from Cash Flows from Explanation
Operating Investing Financing
Activities Activities Activities

Company is using
cash generated from
operations to buy
+ - - fixed assets and to
pay the debts or to
owners
Analysis ofREPORTING,
ACCM506 – FINANCIAL cash flows
STATEMENTS AND ANALYSIS – I

Cash Flows from Cash Flows from Cash Flows from Explanation
Operating Investing Financing
Activities Activities Activities

Company is using
cash generated from
borrowings in order
+ - + to expand (buy fixed
assets).
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• A company is having cash generated from the operating activities for Rs. 100,000. The
cash used in investing activities were Rs. 50,000 and cash generated from financing
activities were Rs. 20,000.
• These figures in the cash flow statement signifies:
a) Company is using cash generated from operations to raise the long-term loans and to
sell the fixed assets.
b) Company’s problems in generating the cash flow from operations are covered by sale
of fixed assets and by raising of long-term loans.
c) Company is using the cash generated from operations to purchase the fixed assets
and raise long term loans.
d) Company is financing operating cash flow shortages by purchase of fixed assets and
payment of loans.
Analysis ofREPORTING,
ACCM506 – FINANCIAL cash flows
STATEMENTS AND ANALYSIS – I

Cash Flows from Cash Flows from Cash Flows from Explanation
Operating Investing Financing
Activities Activities Activities

Company is using
cash generated from
operations and from
+ + - sale of fixed assets
and to pay the debts
or to owners
Analysis ofREPORTING,
ACCM506 – FINANCIAL cash flows
STATEMENTS AND ANALYSIS – I

Cash Flows from Cash Flows from Cash Flows from Explanation
Operating Investing Financing
Activities Activities Activities

The operating cash

flow problems of
the company are
- + + covered by sale of
fixed assets and
borrowings.
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• If the cash flows from operating activities of the company are positive, it
signifies:
a) The cash inflows from operating activities are more than cash outflows.
b) The company can utilize the positive cash inflows (from operating
activities) to buy fixed assets
c) The company can utilize the positive cash inflows (from operating
activities) to pay dividend
d) All of the above
Analysis ofREPORTING,
ACCM506 – FINANCIAL cash flows
STATEMENTS AND ANALYSIS – I

Cash Flows from Cash Flows from Cash Flows from Explanation
Operating Investing Financing
Activities Activities Activities

a) The company is
growing rapidly as it
is buying fixed
- - + assets.
b) The operating
cash flow problems
are resolved by
buying loans
Analysis ofREPORTING,
ACCM506 – FINANCIAL cash flows
STATEMENTS AND ANALYSIS – I

Cash Flows from Cash Flows from Cash Flows from Explanation
Operating Investing Financing
Activities Activities Activities

The company is
financing operating
cash flow shortages
- + - and is making
payments to its’
creditors via sale of
fixed assets
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• A manufacturing company having the following transactions in the past quarter of
2021.
I. Purchase of building Rs. 250,000
II. Sale of old small machinery Rs. 50,000
III. Repayment of bank loan Rs. 10,000
• The total cash inflows from investing activities will be:
a) 310,000
b) 200,000
c) 60,000
d) 50,000
Analysis ofREPORTING,
ACCM506 – FINANCIAL cash flows
STATEMENTS AND ANALYSIS – I

Cash Flows from Cash Flows from Cash Flows from Explanation
Operating Investing Financing
Activities Activities Activities

The company is
using cash reserves
to finance its’
- - - operations and also
to pay its’ creditors.
ACCM506 – FINANCIAL REPORTING, STATEMENTS AND ANALYSIS – I

Poll
• The company has raised a loan of Rs. 50,000 during the previous year.
• It will be classified in cash flow statement under:
a) Operating activities
b) Investing activities
c) Financing activities
d) All of the above