cashflows help

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hello,

Can anyone offer me some help / advice about cashflows? I have tried looking in the book and it seems really complicated and I am sure it isn't and that I am missing something.
One question in particular is why does cash increase when creditors increase? surely if creditors increase then you have made more purchases and owe more money?
help im very confused?
:(

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    cashflows help
    soph wrote:
    Hello,

    Can anyone offer me some help / advice about cashflows? I have tried looking in the book and it seems really complicated and I am sure it isn't and that I am missing something.
    One question in particular is why does cash increase when creditors increase? surely if creditors increase then you have made more purchases and owe more money?
    help im very confused?
    :(
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:cashflows help

    Cash flows must be split by operating, finance and investings activities

    Operating = operating cash flow
    Plus (Increase)Decrease Inventory
    Plus (increase)/Decrease Receivable
    Plus increase/(Decrease) Payables (increase is due to taking advantage of credit terms and not having pay cash, which causes cash to be generated)
    plus Annual depreciation
    Less gain or profit on sales of non current assets
    Less Interest
    Less Tax

    Investing activites
    Proceeds from sale of non current assets
    Additional non current asset purchases

    Finance activies
    Increase/decrease of share capital/premium
    Increase/decrease of long term liabilities

    Hope this helps. If you need any further help then post you e mail address and I will respond direct.



  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:cashflows help

    I just ask myself the question, what's happening to my bank balance? If I buy something, it goes down, if I sell something it goes up. If I owe more money then I still have it in the bank, so it goes up. If more money is owed to me then cash goes down. If I have more receivables then I haven't sold as much, so cash goes down.

    Good luck, Jackie
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:cashflows help

    Hi

    i'm sorry but you have really confused me to the point of suicide - please help - distressed
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:cashflows help

    Sapphire

    This may help but then it may confuse you even more but here goes:

    E.G.
    2004 2005
    Payable £1000 £2000

    So between the 2 years, your Creditors has increased £1000. So you have obviously been out and brought more goods! But you have not actually paid for these goods so there hasn't been an outflow of cash! If there hasn't been a outflow of cash, then the logical thing is that your cashflow has increased. For Receiveables and Payables, there has to be either an increase or decrease in cashflow. If its not one, it has to be the other!

    So for Receiveables:

    Year 2004 2005
    Debtors £1000 £2000

    So in this instance, your debtors have increased. So because you are owed more money, you haven't actually received any money. If you haven't received any money, then this would be a negative on your cashflow!!

    I hope this helps, if I have got you more confused, sorry!!!

    Tim

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:cashflows help

    you sound as though you understand cashflows. im totally lost on both cashflows and reconciliation any tips.

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