Questions On Business Accounting

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Business accounting lect 7

Cash flow statements, profit and cash revisited

Statement of cash – how well has a business generated vash during a financial period:

Cash flow= cash recieved LESS cash paid

Income statement (statement of profit or loss) – how much profit or loss has a business made during a financial period: Profit(loss) = income earned LESS Expenses incurred

Remember this from Lect 2.
Basic difference is timing of cash flows.

Profit compared to cash

Profitable businesses can fail because they do not have adequate cash/bank balances
The statement of cash flows highlights ALL the cash that has flowed into and out of a business furing a financial period, not just that received from sales or paid out for purchases and expenses.

Profitable businesses will hace cash tied up in inventory and trade recievables. They may also …

Cash Inflows:
Receipts from customers for goods/services
Cash introduced by owners
Loan received – (but when you have to pay the loan money is going out)
Bank interest received
Receipts from sale of property, plant equipment, etc.
Cash Outflow:
Payments to suppliers of good/services
Drawings by owners
Repayment of loans
Interest paid on loans
Payments for property, plant, equipment, etc.

Inventory

- More inventory (unsold goods) equals less cash available.
- Inventory is cash effectively sa ton a shelf OR stored in a werehouse.
- often pay for it before you recieve revenue for selling it.
- important to not have to much, and manage it.
- affects your cash position
Basic principles and terms

The Cash is not earning profits
Cash flows from operating activities arise from the normal trading activities of a business.
Cash flow from investing activities arise from purchase or
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