deegan5e_ch20.pptVIP

Chapter 20 Statement of cash flows Objectives Understand the accounting requirements relating to the disclosure of information about an organisation’s cash flows Understand how to construct a cash-flow statement in conformity with AASB 107 ‘Cash Flow Statement’ Understand how the statement of cash flows provides information that is a useful complement to the balance sheet and the income statement Understand how we define ‘cash’ and ‘cash equivalents’ for the purposes of a cash-flow statement and understand that these definitions mean that cash-flow statements address transactions beyond those involving merely ‘cash’ Understand the differences between cash flows from operations, cash flows from investing, and cash flows from financing activities Be aware of the various supporting notes that must accompany a cash-flow statement Comparison with other financial statements Balance sheet shows financial position at a certain date Income statement shows profit or loss that has been generated for a period of time using accrual accounting Cash-flow statement explains the movements in cash and cash equivalents for a given period provides a reconciliation of opening and closing total of cash and cash equivalent balances appearing in the balance sheet indicates sources of cash in terms of cash flows from operations, investing, and from financing Purpose of cash flow statement Purpose of the cash-flow statement Assists in assessing the ability of the company or economic entity to generate cash flows meet financial commitments as they fall due, including servicing of borrowings and payment of dividends fund changes in the scope and/or nature of its activities obtain external finance By having knowledge of both cash flows and accrual of profits/losses, investors are likely to be better able to assess the performance and viability of the reporting entity Purpose (cont.) Argued (by some people) to be more reliable than profit data as profit data typically based on numerous s