How to prepare a statement of cash flows

We will first prepare a cash flow statement of a sole trader’s business, as this will be easier than of a limited company. Example: John Bros. started a business on 1st January 2017 with cash $2,50,000. They purchased furniture for cash $35,000. They submitted the following information on 31st December 2017. Purchased merchandise for $85,000 …

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Reporting cash flows from operating activities

An enterprise can report cash flows from operating activities using any one method of the following: The Direct methods: Whereby major classes of gross cash receipts and gross cash payments are disclosed The indirect method: Whereby the profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals …

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Cash flow from financial activities

Explanation Financing activities are activities that result in changes in the size and composition of the equity capital and borrowings of the entity. The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the enterprise. The following …

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Cash flow from investing activities

Explanation Investing activities are the acquisition and disposal of non-current assets and other investments not included in cash equivalents. The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. The …

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Cash flow from operating activities

Explanation Operating activities is perhaps the key part of the cash flow statement because it shows whether, and to what extent, business concerns can generate cash from their operations it is these operating cash flows which must, in the end, pay of all cash outflows relating to other activities, i.e. paying loan interest, dividends and …

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Difference between Profits and cash flows

Explanation One of the commonest misconceptions about business matters is that profit made by an organization is equal to, or roughly equal to, the increase in cash (or bank) balances recorded in a financial year. Many an investor who provides the capital for a company (by way of buying its shares) but plays no active …

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Cash flow statement MCQs

Take a quick Multiple Choice Questions (MCQs) test about Cash flow statement. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start Cash flow statements MCQs quiz. If you find difficulty in answering these questions, read ‘Cash flow statement‘ chapter thoroughly from the …

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