Cashflowstatement现金流量表的编制方法.docx

1、Cashflowstatement现金流量表的编制方法Issue 1 Disclosure: cash flow statements1. General format of cash flow statement:Cash Flow Statement for the year ended 30 June 2006Cash flows from operating activitiesCash receipts from customers+Cash paid to suppliers and employees-Cash generated from operationsInterest

2、paid-Income taxes paid-Net cash used in operating activitiesCash flows from investing activitiesPurchase of investments-Purchase of property, plant and equipment-Proceeds from sale of equipment+Interest received+Dividends received+Net cash used in investing activitiesCash flows from financing activi

3、tiesProceeds from issue of share capital+Proceeds from long-term borrowings+Repayment of borrowings-Dividends paid-Net cash used in financing activitiesNet increase (decrease) in cash and cash equivalents+/-Cash and cash equivalents at beginning of period+Cash and cash equivalents at end of period+2

4、. As cash flow statement is introduced, what is meant by the term cash?Definition of cash is important because cash cannot generate cash flow in the context of preparing a cash flow statement and cash should be recorded in Cash and cash equivalents at beginning of period.Cash comprises cash on hand

5、and demand deposits.Cash equivalents are short-term highly liquid investments that are readily convertible into known amounts of cash, and which are subject to an insignificant risk of changes in value.Examples: bank and non-bank bills, money market deposits close to maturity, investment within a te

6、rm of 3 months or less.Bank overdraft is treated as a financial activity.Account receivable (subject to adjustment by bad debts) and equity securities (high risk in changes in value) are excluded from the definition of cash.3. Classification of cash flow activitiesOperating activitiesAssociated with

7、 revenues and expensesE.g. to lenders for interest and borrowing costsInvesting activitiesAssociated with movement in non-current assets and investmentE.g. to sale and purchase of shares and debenture of other entitiesFinancing activitiesAssociated with movement in non-current liabilities and equity

8、E.g. to issue shares, debenture, borrowings, share buy-backs, dividend paid for the company(Note: you need to make clear whether the payment or receipt is for our own company or third parties)4. Preparing the cash flow statementStep 1: Cash flows from operating activitiesThere are 2 methods which ca

9、n be used direct method and indirect methodDirect method is based on individual item in income statement. Major classes of revenues are shown as gross cash inflows from operations, and expenses are shown as gross cash outflows from operations. The information necessary to determine the operating cas

10、h flows is obtained by adjusting sales, cost of sales and other items in the accrual-basis IS for non-cash items and items not related to operating activities.Under direct method, each item is adjusted from accrual basis to cash basis. Certain items, such as depreciation and amortisation of non-curr

11、ent assets and gains/losses on non-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 is adjusted to a cash-basis profit by making adjustments for non-cash items used in the det

12、ermination 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 expected future cash inflows (accrued income) and outflows (accrued expense). The deferrals and accruals of future cash flows are

13、reflected in the changes in the balance of assets and liabilities relating to operating activities. (This method is similar to what is done in preparing tax).Both methods are permitted under IAS7.A. Cash receipts from customersBeginning Accounts Receivable+ Credit sales-Bad debts written off-Discoun

14、t 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 doubtful debts/Cr AR)The point is the balance of the allowance for doubtful debts account must not be netted off against the accounts

15、 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 and employees (and other expenses)For cash paid to suppliers:Beginning acco

16、unts 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 from IS. COS = Beginning inventory + Credit purchases Ending inventoryCredit purchases = COS Beg

17、inning 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 + Prepaid expense(Cash) = Ending prepaymentCash payment = Expense + Endi

18、ng prepayment Beginning prepaymentStep 2: Cash flows from investing activitiesA. Acquisition and disposal of non-current assetsThis step involves an examination of any changes in these long-term assets in the light of relevant transaction data to determine the effects on cash flows. Hence, you must

19、search the data to check whether the company purchase long-term assets on cash or on credit and sell long-term assets on cash or on credit.B. Interest and dividends receivedBeginning accrued income+ Interest/dividend income=Total accrued income (Asset)-Closing accrued income= Interest and dividends

20、receivedStep 3: Cash flows from financing activitiesThe initial step is to analyse the balance sheet and statement of changes in equity for changes in non-current liabilities and equity items. These changes are then assessed in light of additional relevant transaction data to determine changes which

21、 resulted in cash flows.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 equivalentsStep 7: Note to reconcile the net cash used in operating activities

22、with profit in the IS by using indirect method.The reconciliation process commences with the accrual-basis profit and adjusting for any non-operating items (e.g. gains/losses on sale of PPE) and all non-cash expenses and revenues. Profit for the periodSubtract: Gains on sale of non-current assets (P

23、rofit from investing activities/gains do not 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/subtract: Changes in current assets and liabilities in BS

24、 (Non-current assets and liabilities relate to investment or financing)Current items in BS+profit/cash-profit/cashCurrent Asset (A/R, Inventories, Prepayment)Assets decreaseAssets increaseCurrent Liabilities (A/P, Accruals, Deferred income)Liabilities increaseLiabilities decreaseStep 8: Notes to dis

25、cuss non-cash financing and investing activities, including acquisition or sale of a subsidiary and of property, plant and equipmentWhy? Since the cash flow statement reports only the effects of transactions on cash and cash equivalents, some material financing and investing activities may be omitte

26、d from the statement if such transactions do not affect cash flows. Examples include conversion of long-term debt to equity, the acquisition of other entities by means of a share issue, the acquisition of non-current assets by means of mortgage, and the acquisition of assets by entering into a finan

27、ce lease.My own thought:The essence of cash flow statement is to turn the accrual-accounting profit to cash-accounting profit (which is also net cash). In order to achieve this goal, there are 2 ways we can choose. The first way is to adjust the accrual-accounting profit, which is called indirect me

28、thod. Under indirect method, accrual-accounting profit is adjusted by reducing non-cash expenses such as depreciation expense (which means adding it to profit), and gain/loss which does not affect the cash level. Then, we need to adjust the change of current assets and liabilities, which are related

29、 to operating activities. Actually, we can subdivide the profit, and this will lead to another method direct method. Under the direct method, the amount of cash inflow and outflow will be calculated. We can use sales, purchases and other expense together with the change of assets and liabilities to

30、get the cash. Cash generated from operating activities is closely related to current assets and current liabilities; cash generated from investing activities is closely related to non-current assets; cash generated from financing activities is closely related to non-current liabilities and equity.Ex

31、ample: 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 Payable= - the amount of cash out

32、flow 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 sal