Cash flow statement(現(xiàn)金流量表的編制方法)

1、issue 1 disclosure: cash flow statementsissue 1 disclosure: cash flow statements1.general format of cash flow statement:cash flow statementfor the year ended 30 june 2006cash flows from operating activitiescash flows from operating activitiescash receipts from customers+cash paid to suppliers and em

2、ployees-cash generated from operationsinterest paid-income taxes paid-net cash used in operating activitiescash flows from investing activitiescash flows from investing activitiespurchase of investments-purchase of property, plant and equipment-proceeds from sale of equipment+interest received+divid

3、ends received+net cash used in investing activitiescash flows from financing activitiescash flows from financing activitiesproceeds from issue of share capital+proceeds from long-term borrowings+repayment of borrowings-dividends paid-net cash used in financing activitiesnet increase (decrease) in ca

4、sh and cash equivalents+/-cash and cash equivalents at beginning of period+cash and cash equivalents at end of period+2.as cash flow statement is introduced, what is meant by the termcash?definition of cash is important because cash cannot generate cash flow in the contextof preparing a cash flow st

5、atement and cash should be recorded incash and cashequivalents at beginning of period.cash comprises cash on hand and demand deposits.cash equivalents are short-term highly liquid investments that are readily convertibleinto known amounts of cash, and which are subject to an insignificant risk of ch

6、angesin value.examples: bank and non-bank bills, money market deposits close to maturity,investment within a term of 3 months or less.bank overdraft is treated as a financial activity.account receivable (subject to adjustment by bad debts) and equity securities (highrisk in changes in value) are exc

7、luded from the definition of cash.3.classification of cash flow activitiesoperating activitiesinvesting activitiesassociated with revenuese.g. to lenders for interestand expensesand borrowing costsassociated with movemente.g. to sale and purchasein non-current assets andof shares and debenture ofinv

8、estmentother entitiesassociated with movemente.g.toissueshares,innon-currentliabilitiesdebenture,borrowings,and equityshare buy-backs, dividendpaid for the companyfinancing activities(note: you need to make clear whether the payment or receipt is for our own companyor third parties)4.preparing the c

9、ash flow statementstep 1: cash flows from operating activitiesthere are 2 methods which can be used direct method and indirect methoddirect method is based on individual item in income statement. major classes of revenuesare shown as gross cash inflows from operations, and expenses are shown as gros

10、s cashoutflows from operations. the information necessary to determine the operating cashflows is obtained by adjusting sales, cost of sales and other items in the accrual-basis isfor non-cash items and items not related to operating activities.under direct method, each item is adjusted from accrual

11、 basis to cash basis. certainitems, such as depreciation and amortisation of non-current assets and gains/losses onnon-current assets disposed of, are excluded, because they have no effect on cash flow.indirect method is based on after-tax profit in income statement. the accrual-basis profit isadjus

12、ted to a cash-basis profit by making adjustments for non-cash items used in thedetermination of profit. added back to profit are the effects of all deferrals of cash inflows(deferred income) and outflows (prepayment), and deducted are all accruals of expectedfuture cash inflows (accrued income) and

13、outflows (accrued expense). the deferrals andaccruals of future cash flows are reflected in the changes in the balance of assets andliabilities relating to operating activities. (this method is similar to what is done inpreparing tax).both methods are permitted under ias7.a. cash receipts from custo

14、mersbeginning accounts receivable+ credit sales-bad debts written off-discount allowed= total accounts receivable-ending accounts receivable= cash receipts from customersbad debts written off is actually a/r written off in uk (dr provision for doubtfuldebts/cr ar)the point is the balance of the allo

15、wance for doubtful debts account must not benetted off against the accounts receivable balance. we must use bad debts written off.beginning allowance + bad debts bad debts written off = ending allowancebad debts written off = beginning allowance + bad debts ending allowanceb. cash paid to suppliers

16、and employees (and other expenses)for cash paid to suppliers:beginning accounts payable+ credit purchases-discount received= total accounts payable-ending accounts payable= cash paid to suppliersbut credit purchase is not shown in is. only cost of sales can be obtained directly fromis.cos = beginnin

17、g inventory + credit purchases ending inventorycredit purchases = cos beginning inventory + ending inventoryfor cash paid to employees and other services:settle accruals:beginning accruals+ accrued expense= total accruals-ending accruals= cash paid for servicesprepayment:beginning prepayment expense

18、 + prepaid expense(cash) = ending prepaymentcash payment = expense + ending prepayment beginning prepaymentstep 2: cash flows from investing activitiesa. acquisition and disposal of non-current assetsthis step involves an examination of any changes inthese long-term assets in thelight of relevant tr

19、ansaction data to determine the effects on cash flows. hence, youmust search the data to check whether the company purchase long-term assets oncash or on credit and sell long-term assets on cash or on credit.b. interest and dividends receivedbeginning accrued income+ interest/dividend income=total a

20、ccrued income (asset)-closing accrued income= interest and dividends receivedstep 3: cash flows from financing activitiesthe initial step is to analyse the balance sheet andstatement of changes in equity forchanges in non-current liabilities and equity items. these changes are then assessed inlight

21、of additional relevant transaction data to determine changes which resulted in cashflows.step 4: ascertain net cash and cash equivalent increase/decreasestep 5: reconcile cash and cash equivalent at end with that at the beginningstep 6: note to disclose the components of cash and cash equivalentsste

22、p 7: note to reconcile the net cash used in operating activities with profit in the is byusing indirect method.the reconciliation process commences with the accrual-basis profit and adjustingfor any non-operating items (e.g. gains/losses on sale of ppe) and all non-cashexpenses and revenues.profit f

23、or the periodsubtract: gains on sale of non-current assets(profit from investing activities/gains donot affect cash, only sales proceeds affect cash)subtract: investment income(interest and dividends received from investing activities)add: depreciation and other write-downs(no reduction of cash)add/

24、subtract: changes in current assets and liabilities in bs(non-current assets andliabilities relate to investment or financing)current items in bscurrent asset (a/r,inventories, prepayment)current liabilities (a/p,accruals, deferredincome)+profit/cashassets decreaseliabilities increase-profit/cashass

25、ets increaseliabilities decreasestep 8: notes to discuss non-cash financing and investing activities, including acquisitionor sale of a subsidiary and of property, plant and equipmentwhy? since the cash flow statement reports only the effects of transactions oncash and cash equivalents, some materia

26、l financing and investing activities maybe omitted from the statement if such transactions do not affect cash flows.examples include conversion of long-term debt to equity, the acquisition of otherentities by means of a share issue, the acquisition of non-current assets by meansof mortgage, and the

27、acquisition of assets by entering into a finance lease.my own thought:the essence of cash flow statement is to turn the accrual-accounting profit tocash-accounting profit (which is also net cash). in order to achieve this goal, there are 2ways we can choose. the first way is to adjust the accrual-ac

28、counting profit, which iscalled indirect method. under indirect method, accrual-accounting profit is adjusted byreducing non-cash expenses such as depreciation expense (which means adding it toprofit), and gain/loss which does not affect the cash level. then, we need to adjust thechange of current a

29、ssets and liabilities, which are related to operating activities. actually,we can subdivide the profit, and this will lead to another method direct method. underthe direct method, the amount of cash inflow and outflow will be calculated. we can usesales, purchases and other expense together with the

30、 change of assets and liabilities toget the cash. cash generated from operating activities is closely related to current assetsand current liabilities; cash generated from investing activities is closely related tonon-current assets; cash generated from financing activities is closely related tonon-

31、current liabilities and equity.example:direct method:cash outflow = beginning a/c payable + purchases closing a/c payableindirect method:net cash = profit + increase of a/c payable= (revenue os purchases + cs ) + ending a/c payable opening a/c payable= - (purchases + opening a/c payable ending a/c p

32、ayable= - the amount of cash outflow for purchasesdirect method:cash inflow = beginning a/c receivable + credit sales ending a/c receivableindirect method:net cash = profit increase a/c receivable= (revenue - ) (ending a/c receivable beginning a/c receivable)= revenue + beginning a/c receivable ending a/c receivable= the amount of cash inflow for sales5.limitations of the cash flow statement past cash flows reported: the statement is useful to the extent that the past cash flowinformation helps in predi