![]() ![]() The sale of a machine would be shown under which section of the cash flow statement? * a) Cash flow from operating activities. ![]() The purchase of equipment would be shown under which section of the cash flow statement? * a) Cash flow from operating activities. Cash paid to suppliers and employees is shown under which section of the cash flow statement? * a) Cash flow from operating activities. A loan from the bank would be shown under which section of the cash flow statement? * a) Cash flow from operating activities. b) Dividends for a company are similar to drawings for a small business. Which of the following statements are true? * a) Dividends are cash payouts to people who own shares in a company. True or false: The cash flow statement shows essentially the same information as the income statement. True or false: The cash flow statement is a report showing flows of cash in and out of a business. This Form cannot be submitted until the missingįields (labelled below in red) have been filled in Cash Flow Statement Mini Quiz: Please note that all fields followed by an asterisk must be filled in.ġ. Here is the bank T-account for the sample business we've been using throughout our tutorials, George's Catering: ![]() ![]() So one would look over the bank T-account and possibly the cash receipts journal and cash payments journal (if needed). The cash flow statement can be drawn up directly from records of one's cash and bank account. The final section of the statement comprises the net cash increase or decrease for the period as well as the cash balance at the beginning and end of the period. Similarly, drawings (or dividends for a corporation) may also be placed under this section, although it can also be placed under the operating activities section if the business so chooses.Īs financing activities mainly deal with cash inflows (receiving cash from shareholders or lenders), the total of this section is usually a positive for cash flow. Thus the repayment of a loan (in part or in full) falls under financing activities (as a cash outflow), as the loan served as finance for the business originally. We also include cash outflows in this section that relate to financing that we originally obtained. Thus financing activities mainly involves cash inflows for a business.įinancing can come from the owner (owners equity) or from liabilities (loans). Replacements do not involve expansion but rather refer to an asset being purchased to replace an old or obsolete (no longer used) asset.Ĭash flow from financing activities is the third component.įinancing is the source of the cash that we will be using to invest in non-current assets. Purchases of assets are put under two different categories: additions or replacements.Īdditions means purchases of additional assets in order to expand the business. Thus, the cash received this year from selling equipment that was originally bought (invested in) three years ago, would also be included in this section.Īs investing activities mainly deal with cash outflows (buying non-current assets), the total of this section is usually a negative. We also include cash inflows in this section relating to the sale of a non-current asset that we have already invested in. Thus investing activities mainly involves cash outflows for a business. įor example, one could be spending cash on computer equipment, on vehicles, or even on a building one purchased. Investing (in the context of the cash flow statement) means the spending of cash on non-current assets. So yes, cash really is king - in the business world and even in accounting. And the cash flow statement, which shows us what the business has been doing with its cash - provides vital information. In real life this extreme situation would rarely occur, but this example serves to explain that the cash situation of a business is key. And it could occur if additionally you weren't monitoring the cash flows of your business. It could occur if all or most of your sales have been made on credit. You may be wondering, "But how could that even occur?" Your business wouldn't survive very long in that kind of situation. The answer is that one could show the most fantastic performance according to the income statement, with huge profits, and yet have nothing remaining in the bank. Just as it sounds, the cash flow statement is a statement (report) of flows of cash - both in and out of the business.īut why do we need the cash flow statement if we've already got the income statement? As the business owner, you couldn't even pay yourself! Without cash, you can't pay bills, you can't expand the business by purchasing assets. And it is quite true, because cash is the lifeblood of the business. This is a common saying in the business world. ![]()
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