5 Financial Statements
1 Statement of Profit or Loss
Measures: Profit by recording income and expenses
2 Statement of changes in equity
Measures: Value of equity, changes in the value equity, records Capital (Share Capital), Retain Income (Net Profit),
3 Statement of Financial Position
Measures: Liquidity, Solvency, Profitability of Assets (Efficiently Assets are used generate Profits), Assets, Equity, Li
4 Statement of Cash flows
Measures: Analysis the cash flow in (generating Cash)/cash flow out (utilising cash)
5 Notes and Policies
Provides the user with more detail regarding the accounting policies of the business and details on values.
Name of business
Statement of Cash flows for period ended
1. Cash flows from Operating Activities
Cash flows from buying, incurring of expenses and selling activities
(SOPL + Current Assets - Current Liabilities)
(Excluding the Bank and Bank overdraft)
2. Cash flows from Investing Activities
Non-current assets
(SOFP)
3. Cash flows from Financing Activities
Capital, Non-current liabilities
(SOCE and SOFP)
Net cash flow for the period (1 + 2 + 3)
Cash on hand at the beginning of year (Bank on the SOFP - last years balance)
Cash on hand at the end of the year (Bank on SOFP - current years balance)
+ =
Owners Equity Liabilities
Cash flows from Financing activities Cash flows from investing
- Raising capital - cash inflow - Purchasing assets - cash
- Repaying capital - cash outflow - Selling assets - cash infl
Starting business Non-current assets
Total assets excluding Cur
- raise capital
- Owners - Equity Current Assets :
- Borrowings - Liabilities 1) inventory on Hand
Non-current liabilities 2) Accounts Receivable
- use non-current liabilities to fund the purchase of 3) Cash and cash equivale
non-current assets - Bank account + Petty
- use current liabilities to fund the purchase of Working Capital
current assets
Current Assets - Current l
Both assets are used to ge
The use of the assets are
Income - Expenses = Net
Cash flow from Operating Activities
Retain Income (Net Profit), NDR (Revaluation of assets), Distribution (Drawings/Dividend)
e Profits), Assets, Equity, Liabilities
details on values.
Two methods
- Direct method Cash Inflows
Less: Cash out flows
- Indirect method = Net Cash flow
+ Opening Bank balance
= Closing Bank balance
Assets
Cash flows from investing activities
- Purchasing assets - cash outflow
- Selling assets - cash inflow
Non-current assets
Total assets excluding Current Assets
Current Assets :
1) inventory on Hand
2) Accounts Receivable
3) Cash and cash equivalents (Cash on hand)
- Bank account + Petty Cash on hand + short-term cash deposits
Working Capital
Current Assets - Current liabilities = Net Working Capital
Both assets are used to generate income
The use of the assets are used a cost = expenses
Income - Expenses = Net Profit
Included in the net profit are non-cash items
: Bad debts, Provision for doubtful debts,
Depreciation, Accrual of credit purchases and sales
n-cash items
urchases and sales
Statement of cash flows for the year ended …
Cash flows from operating activities
Cash received from customers
Cash paid to suppliers and employees
Cash generated from operations/utilised in operations
Interest paid
Interest received
Dividends paid
Dividends received
Tax paid
Cash flows from investing activities
Purchase of property, plant and equipment
Additions
Replacements
Proceeds on sale of property, plant and equipment
Purchase of investments
Proceeds from sale of investment
Cash flows from financing activities
Proceeds from share issue
Redemption of redeemable preference shares
Redemption of debentures
Payment of long-term loan
Proceeds from (the increase in) long-term loan
Net increase(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Notes:
1 . Reconciliation of profit for the year before tax to cash generated from
Profit before tax
Adjustments:
Add:Interest expense
Less: Interest income
Less: Dividends received
Add: Depreciation
Operating profit before working capital changes:
Changes in inventory
Changes in accounts receivable
Changes in accounts payable
Changes in accruals and deferrments
Cash generated from operations
2. Cash and cash equivalents
Cash and cash equivalents consist of the following statement of financia
Cash
0
- Customers will giv
- Pay cash to suppl
0 (Net cash received f
Cash received from
- why would custom
1) Settlement of the
2) Cash Sales
- what information w
0 1) Value of the AR
AR on SOFP - C
Closing Balance (A
Settlement of Debts
0 Opening balance
Credit Sales
Opening Balance
0 Closing Balance C/D
Bad Debts
0 Credit Sales
Provision for Doubtf
enerated from operations Total sales as per S
Cash Sales + Cash
Cash paid to supplier
- Settle Accounts with
- Pay cash for the purc
- Pay the employees s
What information woul
Accounts Payable - Op
Total - Credit Purchase
- Expenses
ent of financial position amounts: - Inventory
20X2 20X1
Opening balance
Cash purchases
Customer returns
Credit Purchases
Opening Balance (SOF
Credit purchases (need
Cost of Sales (SOPL)
Cash Purchases (need
Credit losses - Invento
- Dama
- Good
Closing balance (C
Creditor returns of
Bank (Amount paid
Cash paid to Suppliers
Cash paid to suppliers
Customers will give us cash 1) Settling debts 2) Cash Sales
ay cash to suppliers 1) Cash paid for Expenses (Purchase off Inventory) 2.
et cash received from selling and buying activities)
sh received from customers
why would customers pay the business?
Settlement of their debts
Cash Sales
what information would be needed?
Value of the AR
AR on SOFP - Carrying Value
osing Balance (AR) - Provision for Doubtful Debts
tlement of Debts - T Account of Accounts Receivable
Accounts Receivable
ening balance Closing Balance
edit Sales Bad Debts
Provision for Doubtful debts
Bank
x
ening Balance
sing Balance C/D
d Debts
edit Sales
vision for Doubtful debts
al sales as per SOPL less Credit Sales = Cash sales
sh Sales + Cash received from Customers settling their debts = Cash receiv
sh paid to suppliers and employees
ettle Accounts with Creditors for purchasing goods and services on credit (Expense +
ay cash for the purchase of goods and services (Cash purchases)
ay the employees salaries and wages
at information would be needed
ounts Payable - Opening balance and Closing balance (SOFP)
al - Credit Purchases
- Expenses
- Inventory
inventory on hand (Carrying Value)
ening balance Closing Balance
sh purchases Cost of Sales
stomer returns Creditor returns
edit Purchases
x
ening Balance (SOFP)
dit purchases (need to be calculated)
st of Sales (SOPL)
sh Purchases (need to be given)
dit losses - Inventory returned from customers (increase inventory)
- Damaged goods (decreasing inventory)
- Goods returned to the supplier (decreasing inventory)
Accounts Payable
osing balance (C/D) Opening balance
editor returns of Inventory Credit Purchases of inventory
nk (Amount paid to creditors) Credit purchases of expenses
Interest on over-due balances
x
sh paid to Suppliers and Staff:
sh paid to suppliers as per the AP + Cash purchases of inventory + Cash purchases o
se off Inventory) 2. Pay off the creditors
Cash received from customers settling their debts
debts = Cash received from customers
on credit (Expense + Inventory)
x
nventory
xpenses
alances
x
y + Cash purchases of expenses + Cash paid on Salaries and wages
Statement of cash flows for the year ended …
Cash flows from operating activities
Profit before tax
Adjustments:
Add:Interest expense
Less: Interest income
Less: Dividends received
Add: Depreciation
Operating cash flow before working capital changes:
Changes in inventory
Changes in accounts receivable
Changes in accounts payable
Changes in accruals and deferrments
Cash generated from operations
Interest paid
Interest received
Dividends paid
Dividends received
Tax paid
Cash flows from investing activities
Purchase of property, plant and equipment
Additions
Replacements
Proceeds on sale of property, plant and equipment
Purchase of investments
Proceeds from sale of investment
Cash flows from financing activities
Proceeds from share issue
Redemption of redeemable preference shares
Redemption of debentures
Payment of long-term loan
Proceeds from (the increase in) long-term loan
Net increase(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Notes:
1. Cash and cash equivalents
Cash and cash equivalents consist of the following statement of financial
Cash
0
(as per the SOPL)
OB - CB = OB > CB = Inflow (+)
OB - CB = OB < CB = outlflow (-)
OB - CB = OB > CB = Inflow (+)
OB - CB = OB < CB = outlflow (-)
OB - CB = OB > CB = Outflow (-)
OB - CB = OB < CB = inflow (+)
OB - CB = OB > CB = Outflow (-)
OB - CB = OB < CB = inflow (+)
0
0
0
ent of financial position amounts:
20X2 20X1
Statement of cash flows for the year ended …
Cash flows from operating activities
Cash received from customers
Cash paid to suppliers and employees
Cash generated from operations/utilised in operations
Interest paid
Interest received
Dividends paid
Dividends received
Tax paid
Cash flows from investing activities
Purchase of property, plant and equipment
Additions
Replacements
Proceeds on sale of property, plant and equipment
Purchase of investments
Proceeds from sale of investment
Cash flows from financing activities
Proceeds from share issue
Redemption of redeemable preference shares
Redemption of debentures
Payment of long-term loan
Proceeds from (the increase in) long-term loan
Net increase(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Cash generated from operations - Indirect Method
Profit before tax
Adjustments:
Add:Interest expense
Less: Interest income
Less: Dividends received
Add: Depreciation
Add: Loss on disposal of Assets
Operating profit before working capital changes:
Changes in inventory
Changes in accounts receivable
Changes in accounts payable
Changes in accruals and deferrments
Cash generated from operations
Dividends paid
Tax paid
Accounts Receivable Balance (GL) - Provision for doubtful debts
41000
308,000.00
(226,400.00)
81600
-20000
-20600
-14000
-15000
1000
0
10000
-10000
27000
10000
37000
74000
8000
1000
83000
-20000
8000
10600
81600
-20000
-20600
41000
doubtful debts
Accounts Receivable
Opening balance 20,000.00
Credit Sales 300,000.00
320000
Inventory on hand
Opening Balance 40,000.00
Credit Purchases 220,000.00
260,000.00
Accounts Payable
Closing Balance 20,600.00
Bank 209,400.00
230,000.00
Accounts Payable Cash paid 209400
Selling and admin expenses 17000
226400
Income Tax Payable
Closing Balance 19,000.00
Bank 20,600.00
39,600.00
Dividends Payable
Dividends Payable Closing Balance
WHT Payable Closing balance
Bank
-
Equipment
Opening - Cost 89,000.00
Closing balance - Acc Dep 15,000.00
#VALUE!
Profit/loss on disposal of asset
CV - Asset Disposed (Cost - Acc Dep) #VALUE!
#VALUE!
eceivable
Closing Balance 12,000.00
Bad Debts -
Provision for Doubtful debts -
Bank 308,000.00
320000
on hand
Closing Balance 60,000.00
Cost Sales 200,000.00
260,000.00
Payable
Opening Balance 10,000.00
Inventory purchases 220,000.00
230,000.00
Payable
Opening Balance 10,000.00
Charge to SOPL 29,600.00
39,600.00
Payable
Dividends Payable OB
WHT Payable OB
Charge to the SOCE
-
ment
Closing balance - Cost 100,000.00
Opening Balance - Acc De 9,000.00
CV - Asset Disposed #VALUE!
#VALUE!
posal of asset
Loss On disposal 1,000.00
Bank #VALUE!
#VALUE!
Solution
