Cash flow statements

Kelly7

Hi We finished our financial statements unit on Thursday & started our revision. Next week we are apparently having a go at the cash flow statements questions . I didn't understand our lesson of this & decided to go over my college sheets & read this section of the book today but im so confused. Both the book & my college sheets are focusing ok the indirect method but there seems to be two statements being produced still? The book describes the indirect method but it then shows a statement of cash flow which does not follow what it describes and then another box called reconciliation of cash flow statement which does seem to follow what was described. I havent got a clue what I'm meant to be doing, both of these, one of these, are they the same thing? If anyone has any advice or any knowledge on this is be really grateful. Not sure I've explained myself very well? What makes it worse is my tutor said students tend to like these and find them easy & sec will definitely get a question on them in the exam. I feel I have not understood this unit at all Kelly x

kkelly

Hi Kelly7,
I'll try help you if I can. Their are two methods of preparing Cash Flow statements, a direct method and an indirect method. IAS 7 allows either method. I'm doing AQ2010 but for some reason I have a feeling that the direct method is not covered in AQ2013, although if your doing AQ2013 you would need to verify this in case I am wrong. The indirect method is the most common and this involves starting with the profit from operations, adding back depreciation ( as this is not a cash movement ) adjusting for other items, calculating movement in inventories e.t.c. and arriving at net cash from operating activities.
This is the first section. You then move on to investing and financing activities....this is the second part. I assume from your college notes that you will have details of what goes into each of these. The last part is the reconciliation of cash flows. Whatever figure you arrive at should be the movement in cash and cash equivalents in the statement of financial position. Thats why questions on cash flow are great..its not that they are super easy but the figure you arrive at has to be the movement in cash in the SOFP, otherwise you know something is wrong...

Key to these, like with most I suppose, is do as many sample questions as you can!!
And be optimistic...please God you'll be fine and it will come together.....:thumbup1:
Kevin

Kelly7

Thank you for your reply. I have read over it and it does make a bit more sense now so there are just two parts to the cash flow statement? I have been told that we will only be assessed on the indirect method so that is all we have done but just these two parts so I was confused which was the actual statement. I have decided that if I don't pass this exam first time I am going to see if I can re-sit the unit next year and take the exam again then. The teacher I have for this goes very quickly and I find I don't understand much. I did consider asking to change my Thursday class but I don't want to cause a fuss.

Thanks again.

Kelly

kkelly

Hi Kelly,
Ok so you only have the indirect method to deal with. Yes , the cash flow is divided into cash flow from Operating Activities, then Investing Activities and lastly Financing Activities. The total here should agree with the movement in cash in the SOFP. You need to understand what is being done and then practice as much as possible! If you feel the teacher is going to quickly I would ask him/her to explain more and query anything you dont understand.
I wouldnt worry about causing a fuss...I'm sure your paying well for the classes and your entitled to ask questions and query things until you full understand what your learning. I'm sure you can re-sit if need be...but give it a good go first time. Make sure you understand the reasons behind the use e.t.c. of the cash flow, or indeed anything else your studying, practice plenty, ask the teacher to explain further if need be and you should be well on the road then!!
If you get stuck on specific questions post on here and i'm sure someone will be more than happy to help and give you guidance.
Regards
Kevin

Kelly7

Thanks for your help Kevin. Do you know if there is anywhere online (other than the practice assessments on the aat site) that offers practice questions?
I don't really understand why something is being added or deducted, I might have to just learn which is why, as I seem to think everything would be the other way to what it is.
& yes, I am going to give it 100% and hope I can pass but I really don't feel I will be ready in time for the exam, I can't seem to work out where a lot of the answers that I have in our workbook have come from but I will do my best. My Thursday teacher is only taking us for one more unit, so will probably just stay with this class.

xx

welshwizard

kkelly wrote: »

Hi Kelly7,
...for some reason I have a feeling that the direct method is not covered in AQ2013, although if your doing AQ2013 you would need to verify this in case I am wrong. The indirect method is the most common and this involves starting with the profit from operations, adding back depreciation ( as this is not a cash movement ) adjusting for other items, calculating movement in inventories e.t.c. and arriving at net cash from operating activities.
:
Kevin

You are correct:

In the AQ2013 Guidance for the unit under Learning Outcome 3 we are told:

"

Students will only be required to draft the statement of cash flows using the indirect method, with a pro-forma of the statement being given in the assessment if required."

kkelly

Thanks a mil welshwizard for clearing that one up!! Kevin

kkelly

Hi Kelly7
When are you doing your exam? There is a BPP question bank book you could get, I have used it and found it very good. Sounds like the understanding of it is whats getting you stuck....Put up a sample question from your workbook that your stuck on here or pm it to me and I will try guide you. Once you get the understanding of it it will make a big difference.
Regards
Kevin

Kelly7

Thank you for confirming Welsh Wizard!

Thanks Kevin. We had our classes merged last night and the teacher helped me quite a bit so starting to feel a little bit better about a couple of things. I might take you up on that offer of helping if I get stuck on a particular question.

My exam is 21st January, I think that the question book might be a good idea actually. Do you know where I could get it from? Is it just called BPP Financial statements work book?

Thanks again both. Greatly appreciated.

Kelly xxx

kkelly

Hi Kelly,
Yes its the Financial Statements question bank. You can get it from Foyles in London or you can order it online and get it delivered. Practice plenty and done hesitate to ask if you dont understand or are stuck!!
Regards
Kevin