1.
Fundamental of Business Finance
Week 2 day 3: Cash flow statement

2.
Classroom etiquette
Always preview/review
relevant materials on Moodle
before/after class.
Always ask relevant questions
during class.
Keep your mobile phone silent
or in switched off mode.
Regularly attend the classes Dress appropriately
Always bring a laptop,
notebook, and pen in class.

3.
Cash flow statement or statement of cash flow
• A cash flow statement tracks the movement of cash through the business
over a period of time.
• It consists of all the company transactions that use cash (Checks) or supply
cash (deposits).
• Cash inflow and outflows falling within each category are added together to
provide a total for that category.
• A cash flow statement provides information on the adaptability of the
business organisation

4.
Standard presentation for cash flow statement
(Atrill and Mclney, 2019)

5.
Cash flow from operating activities
• These are the cash inflows and outflows arising from normal daily
trading activities ( selling of goods or services).
• Inflow of cash refers to cash received from trade receivables, cash sales,
and other income.
• Outflow of cash refers to cash paid for stocks( inventories), wages, rents,
corporation tax, interest.
• Cash inflows are added and outflows are subtracted and net cash flow is
obtained.

6.
Cash flow from investing activities
• These are the cash outflow and inflow from buying and selling of
non-current assets.
• On top of non-current assets, it also includes financial investment
made in loans or shares in another business
• Cash inflows are added and outflows are subtracted and net cash
flow is obtained.

7.
Cash flow from financing activities
• These are the cash outflow and inflow from long-term financing of the
business.
• Cash inflows are getting a bank loan, issuing new shares, etc.
• Cash outflows are paying back loans, paying dividends, etc.
• Cash inflows are added and outflows are subtracted and net cash flow is
obtained.
Net cash flows for the period = Cash flows from operating+ cash flow from
investing+ cash flow from financing
= Surplus or deficit

8.
Cash flow statement sample 1

9.
Cash flow statement sample 2

10.
Cash flow statement sample 3

11.
Cash flow statement sample 4

12.
Merits and demerits of cash flow statement
Merits
• It facilitates the measurement of the abilities of a business to meet
its fixed obligations.
• It is useful to determine the liquidity and solvency status of the
entity during adverse conditions.
• Identification of ‘Discretionary cash flows’ from business
transactions becomes possible through cash flow analysis.
• Cash flow statement reveals the information with regard to the
availability of cash.

13.
Merits and demerits of cash flow statement
Demerits
• Non-cash transactions are overlooked.
• Not a substitute for an income statement.
• Limited use.
• Historical in Nature.
• Ignoring the accrual concept.

14.
Questions and answers

15.
References:
Atrill, P. and McLaney, E. (2019)Accounting and Finance for Non-
specialists. 11th edn. United Kingdom: Pearson Education Limited.
Elloitt, B. and Elliott, J ( 2019) Financial accounting and reporting.
19th edn.United Kingdom; Pearson Education limite.
Jerry, J., Paul, D., and Donald, E. (2019) Financial accounting. 4th
edn.
Pizzey, A. (1994) Accounting and Finance a firm foundation.4th
edn. London; Villiers House
Weetman, P. (2019) Financial accounting an introduction. 8th
edn.United Kingdom; Perason education limited.