Accounting Course: Cash Flow Statements

Balance sheet:

what a company owes and what it owns assets liabilities and equality.

Income statement:

revenues expenses and profit loss this includes everything the company earned in the period both cash and credit.

Cash flow statement:

the cash flow from operating investing and finance activities includes only actual cash that was paid or received no credit.

Organizing cash flow statements:

Cash inflows and outflows can be organized into three categories into three categories.

Cash flow from operating activities: revenue and operating expenses if the cash payment actually occurred in that period no future payment on current records if actual cash movements accord accounts receivable accounts payable.

Cash flow from investing activates: purchasing property plant and equipment as well as selling those assets making investments in other businesses occurring or divesting business

Cash flow from financing activities: issuing shares, new debt, repaying debt repurchasing shares paying dividends.

*add all together to get the total cash movement over the period

Profits v cash flow

• Profit includes accrued profits or expenses that haven’t necessarily received the cash for.
• Cash flow only records transactions when cash is received or when cash is paid.

Example: if a week’s travel pass costs $40 and is paid in chas full on Monday what is the travel cost for Thursday

Example cash flow: it would be $0 because the expenses were paid in full on Monday.

matching /accrual: $40 / $5 = $8 a day

PP&E (property plant and equipment) and depreciation:

Two ways to calculate depreciation operating cash flows.

Direct method: record each transaction to show each inflow of cash and deduct every outflow of cash to get the net cash flow.

Indirect method: net income + non-cash items, adjustments are made for changes in working capital, inventory balance account receivable and changes over the period, accounts for cash changes and non-cash changes such as depreciation.

Building a full cash flow statement:

Step 1: compare the balance sheets

• This year’s and last year’s balance sheet if the assets have increased then it is a cash outflow if liabilities have increased then it is a cash inflow
• Add assets + liabilities to get a total increase or decrease in cash

Step 2: classifying cash flows

• Operating: plant, equipment, and operating costs
• Investing: buying out other companies
• Financing: bank loans and shares

PP&E:

Two reasons a difference in PP&E may have occurred

1. Depreciation expenses lower PP&E
2. Net capital expenditure increases PP&E

Calculating net capital expenditure:

1. Opening net book value of PP&E
2. Closing net book value of PP&E
3. Depreciation expense

Retained earnings:

Change is retained earnings are usually because of

1. Adding net income for the period
2. Deducting dividends paid in the period