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B293 - Unit 4 - Coggle Diagram
B293 - Unit 4
Understanding cash flows
Cash and profit
Cash
Increases profit
If sales > cost
Does not increase on credit sales
Until invoice is paid
Profit
Increases on credit sales
Acquisition of non-current assets
Depreciation reduces profit
Some decisions subjective
Estimations
Accrued income
Accrued expenses
Depreciation
Allowance for irrecoverable receivables
Provisions
Impairment
Able to show profit
Unable to meet financial obligations
Shows change in cash throughout year
Or period
More detailed than statement of financial position
Shows difference between cash accounting and accruals
Greater objectivity?
Assess
Incoming and outgoing cash
Can I meet liabilities?
Am I able to invest or finance?
Liquidity position
Financial viability
Will the business survive?
Valuation of company
IAS 7 Requirements
Cash flow
From investing activities
Inflows
Sales of intangible assets
Sales of investment in debt and securities
Sales of non-current assets
Outflows
Purchasing intangible assets
Payments to acquire debt and securities
Purchase of non-current assets
From financing activities
Inflows
Receipts from issue of Bonds, Debentures, Loans, Mortgages and other borrowings
Receipt of cash dividends
Receipts from issue of shares
Receipt of interest
Outflows
Repayments of amounts borrowed
Payment of cash dividends
Payments to redeem or repurchase shares
Payment of interest
From operating activities
Inflows
Sale of goods
Royalties, fees or other commissions
Refunds of corporate income tax
Sale of cash equivalents
Outflows
Paying suppliers
Payment of corporate income tax
Paying employees
Payments for acquisition of cash equivalents
Cash equivalents
Cash and demand deposits
Short-term highly liquid investments
Insignificant risk
Able to convert in less than three months
Preparing cash flow statements