Cashflows

lgarside

When doing a cashflow statement do you have to deduct accruals and add prepayments because this is cash not yet spent/spent? I can't see they do this in the book, but I owuld have thought an accural would have the same affect as a creditor, you still have the cash?

CJC

You'll already have adjusted trade payables and receivables to account for any accruals and prepayments when you prepare the balance sheet so there's no need to include them as separate items in the cash flow statement.

sunny

From my opinion, the cash flow is the actual movement of cash, so from this point, I would like to say, we do not need worry about Prepayment or Accrual. Because except at the right payment time point, no movement at other time point.

CJC

Yes the actual cash flowis just about cash but when you reconcile profit from operations to cash you need to adjust for the non-cash transactions that make up profit.

lgarside

Thanks, the thing I don't understand (along with many other things!!!) is the profit figure you use from the income statement includes prepayments and accruals. These are not actual cash movements so therefore why don't you add accruals as this is an expense on the income statement but the actual cash hasn't been paid out of the bank yet, therefore that cash is still there? :001_smile:

peugeot

The increase/decrease in creditors in the balance sheet contains the accruals figures.

If we go back to the original double entry 'credit creditors, debit expense', you can then break it down as to what the accruals double entry is 'credit accruals, debit expense'. For your purposes the creditors figure in the balance sheet contains the accruals. The corresponding debit is also within the items that make up the operating profit figure, so when you add/deduct the increase/decrease in creditors, you are taking into account the effect of increases/decreases in accruals.

Kind regards
Steve

karenv

My understanding is that you do add back the accruals when using the indirect method of calculating cash flow. As you say,these are not actual movements of cash and are included in the profit figure you work from

Miss P

Guys may you help me with the lifo,fifo and avco on ecr

CJC

peugeot wrote: »

The increase/decrease in creditors in the balance sheet contains the accruals figures.

Ya know, I thought I'd explained that a ways back :001_tongue:

CJC wrote: »

You'll already have adjusted trade payables and receivables to account for any accruals and prepayments when you prepare the balance sheet so there's no need to include them as separate items in the cash flow statement.

peugeot

D'oh - of course you did! Sorry I must have gone into autopilot!!:thumbup1: