he following statement of cash flows was prepared for Kiching (Pty) Ltd for year ended 30 June 2021 R’000 R’000 Cash flows
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
The following statement of
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for year ended 30 June 2021 R’000 R’000 Cash flows from operating activities 752 Profit before interest and tax 5 068 Adjustments: Loss on disposal of equipment 88 8 156 Decrease in inventories 132 Increase in receivables (1 856) Decrease in payables (332) Cash generated from operations 6 100 Interest paid (1 872) Dividends paid (2 036) Income tax paid (1 440) Cash flows from investing activities (4 192) Non-current assets purchased (5 288) Proceeds from sale of equipment 1 096 Cash flows from financing activities 4 320 Proceeds from issue of shares 1 440 Increase in long term borrowings 2 880 Net increase in cash and cash equivalents 880 Cash and cash equivalents at beginning of year 720 Cash and cash equivalents at end of year 1 600 |
Examine the statement of cash flows for Kitching (Pty) Ltd provided above and answer
the following questions:
-Is depreciation expense shown as a positive cash flow or a negative cash
flow on the statement of cash flows? Once you have written down your
choice, explain why it is shown as a positive or a negative
Identify two items from the above statement of cash flows that improves the
cash flows but does not increase the profits
Explain the following regarding the working capital changes:
Why is the decrease in inventories positive
Why is the decrease in payables negative
Operating activities has a positive cash flow of R752 000; while the Investing
activities total shows a negative cash flow of R(4 192 000). Discuss whether
these results are favourable or unfavourable for Kitching (Pty) Ltd
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