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Lecture Accounting and financial system - Lecture 7: Statement of cash flow

Lecture Accounting and financial system - Lecture 7: Statement of cash flow. This chapter includes contents: Financial statements, how to prepare cash flow statement, definition of cash? the importance of liquidity in a business, difference between cash-flow and profitability. | ACCOUNTING & FINANCIAL SYSTEMS MCPC 606 STATEMENT OF CASH FLOW LECTURERS: DR. JOHN MACCARTHY & DR. MALIK ZAKARIA 1 1 Statement of Cash Flow Financial Statements: Statement of Comprehensive Income Statement of Financial Position Statement of Cash Flow How to prepare cash flow statement? Statement of Cash flow is prepared from the SOCI and SOFP That is Statement of Cash-flow translates earnings (incomes) from the SOCI and SOFP to finance the operations of the business. 2 Statement of Cash Flow Definition of Cash? The definition of cash include cash and cash equivalent. Cash includes notes, coins and bank account balances. Cash equivalent includes: Short terms highly liquid instruments meaning less than 90 days (fixed deposit). Treasury bills (T-bills). Short-term certificate of deposit (CDs) Commercial Paper (CPs) 3 Statement of Cash-flow The importance of liquidity in a business: It shows the company’s ability to generate enough cash for running the business. It shows how the company . | ACCOUNTING & FINANCIAL SYSTEMS MCPC 606 STATEMENT OF CASH FLOW LECTURERS: DR. JOHN MACCARTHY & DR. MALIK ZAKARIA 1 1 Statement of Cash Flow Financial Statements: Statement of Comprehensive Income Statement of Financial Position Statement of Cash Flow How to prepare cash flow statement? Statement of Cash flow is prepared from the SOCI and SOFP That is Statement of Cash-flow translates earnings (incomes) from the SOCI and SOFP to finance the operations of the business. 2 Statement of Cash Flow Definition of Cash? The definition of cash include cash and cash equivalent. Cash includes notes, coins and bank account balances. Cash equivalent includes: Short terms highly liquid instruments meaning less than 90 days (fixed deposit). Treasury bills (T-bills). Short-term certificate of deposit (CDs) Commercial Paper (CPs) 3 Statement of Cash-flow The importance of liquidity in a business: It shows the company’s ability to generate enough cash for running the business. It shows how the company utilise cash to achieve the objective of the company. It reveals how much can be generated within and how much does the business needed to finance from outside sources. Assessing the liquidity of a business is a means of determining the financial “health” of a business. Liquid assets can be converted easily to cash within a short period of time. 4 Statement of Cash-flows (cont.) Difference between Cash-flow and Profitability Cash-flows show cash movements in terms of cash receipts and payments for any economic activities within the company. Profit is the difference between revenue and expenses paid within a specific period. A compa.ny can be profitable and still be bankrupt because of cash-flows difficulties 5 Statement of Cash-flows (cont.) Components of Cash-flow statement: Operating activities; investing activities and financing activities. Cash-flow from operating activities: This shows how the company generates cash through business operations (i.e., selling product or delivery .