Cash Flow Statement - HELP

Jentel Registered Posts: 60 Regular contributor ⭐


Doing task 6.13 in osborne work book and just can't get it to agree. Can anyone give me the answer or present the cash flow statement for me so then i can work it out. I know i'm going wrong when it comes to the sale/purchase of assets, the proceeds and the depreciation.

My tutor just whizziesthrough these exercises and he just takes it for granted that people know what he is doing. I therefore have not been able to get my head round it. Usually, i can just go home, read the chapter, do the examples or work from the tutuorial book, but with cash flow i find that the tutorial is very confusing and the tasks that they give you are so different from the workbook that i don't know whether i am coming or going.


  • visha
    visha Registered Posts: 218 Dedicated contributor 🦉
    Cash flow statement!
    The easiest of the lot!
    You already know the answer to your problem even before you start to solve it!

    In any full cash flow statement you will be given 3 things

    1) This year's profit and loss account
    2) This year's balance sheet
    3) Last year's Balance sheet

    To know your answer take away last year's cash/bank balance away from this year's cash/ bank balance and that will be your net cash inflow or cash out flow. Beware, if any of the bank balance is an overdraft then you will need to add the balances.

    Cash flow statement is split into two sections:

    1st section will show how much net cash inflow there has been.
    2nd section will show where has that cash been spent.

    1st Section - how much net cash inflow into the business?

    here you need to know where to start!

    From your P&L a/c find profit before interest and draw a draw a line across the page underneath that.

    Then there are 7 points that you MUST address

    2 points from P&L a/c above the line drawn across the page, and
    3 points from the balance sheet (current assets and current liabilities)
    2 points from P&L a/c below the line drawn across the page

    Start with your profit before interest figure and

    1.- ADD any loss (from above the line) that you may have made on the sale of the fixed asset; or LESS any profit that you may have made.

    2.- ADD the total depreciation expense for the year (from above the line, or from additional noted given)

    1 - STOCK - find the difference between last year's stock and this year's stock. If the stock has increased there is a net cash outflow or if the stock has decreased there is a net cash inflow:
    ADD net cash inflow or LESS net cash out flow

    2 - Debtors - find the difference between last year's debtors and this year's debtors. If the debtors has increased there is a net cash outflow or if the debtors has decreased there is a net cash inflow:
    ADD net cash inflow or LESS net cash out flow

    3 - Creditors - BECAREFUL HERE! It is the opposite of Debtors; find the difference between last year's creditors and this year's creditors. If the creditors has increased there is a net cash inflow or if the creditors has decreased there is a net cash outflow:
    ADD net cash inflow or LESS net cash out flow

    1 - LESS -Interest paid for the current year (found below the line from P&L)

    2 - LESS - Actual tax paid.( do your calculations in brackets to demonstrate your understanding) the calculations: last year's unpaid tax (B/S) plus this year's tax payable (P&L) less this year's unpaid tax creditors (B/S) equals actual tax paid to Inland Revenue.

    After the above work out you will get NET CASH INFLOW from operating activities.

    The 2nd sections starts with NET CASH INFLOW:

    there are two things you must remember here:

    1 We need to deal with the dividends paid (P&L) here
    2 You MUST show your workings for Fixed Asset Register to show (a) how much cash been received for the sold asset and (b) how much cash outflow for the purchase of the new fixed assets.

    your workings:
    Opening balance of fixed assets from (B/S) xxxx (NBV)
    LESS FA sold (cost less acc. dep = NBV) - xxxx (plus/minus profit/loss to
    info from foot-notes arrive- Net Cash IN)
    ADD PURCHASES ???? missing figure
    LESS Depreciation expense for this year xxxx from (P&L) or Notes
    EQUALS Closing balance of fixed assets (B/S) xxxx (NBV)

    From the above workings you need to
    1 ADD Net Cash IN from sale if Fixed Asset ( see my workings)
    2 LESS net cash out for purchase of FIXED ASSET (see my workings)
    3 Current Assets - deal with each item under this heading and it will be either cash in or cash out. (the difference between last year's and this year's balances- if assets go up then net cash out and if assets go down then net cash IN) ADD if net cash In or LESS if net cash out.


    4 You do NOT have to deal with CASH because that is what you are working on - IGNORE

    5 Current liabilities - same as current assets - (if CL go up then net cash IN and if CL go down then net cash OUT)
    6 Long term Liabilities - same as current Liabilities
    7 Share Capital - same as current Liabilities
    8 Share Capital premium - same as current Liabilities
    9 Retained P&L balances - IGNORE
    10 Do NOT Forget to MINUS Dividends paid. (either from P&L or Foot-note- You might have to work out ACTUAL dividends paid. - SEE TAX calculations above for HOW?)

    After the above calculation you will arrive at the EXPECTED ANSWER - of NET CASH increase or decrease.

    ADD/LESS the Opening Cash Balance (B/S)

    will equal to the Closing Cash Balance (B/S)

    I Hope this will help.
    If you want to this to be a second nature to you then you must practice the cashflow questions at least 10 questions consecutively in one sitting.

    To understand why we add back the losses and deduct the profits on a sale of fixed asset, from profits before interest, we need to understand what profit and losses are.

    Profit or loss is NOT cash inflow. Only the receipts of the sale of equipment is Cash inflow, which will be shown on the second statement.
  • Jentel
    Jentel Registered Posts: 60 Regular contributor ⭐
    Cash Flow


    Thanks very much for your thoroughness. I have printed offyour reply. I have sinced tackled the task again and have now managed to get it to agree.

    Understanding why things go into certain sections has made a difference. I will definetly practice more of these tasks

    Thanks again
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