Managing Finance and Budgets

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Managing Finance and Budgets

• Seminar 6

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Seminar 6 - Activities

• During this seminar we will
• Review the key concepts and ideas of Cash Flows
• Review Chapter 6 of the set book
• Review the Cash Flow Activity
• (If time) Examine M A Exercise 6.7

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Some Starting Points

• Explain the difference between Cash and Profit.
• Explain what is meant by the following
• Operating Activities
• Returns from Investment
• Servicing of Finances
• Taxation
• Capital Expenditure
• Equity Dividends
• Liquid Resources

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Elements of of the cash flow statement Inflows
and Outflows
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The Cash-Flow Statement 1

• Describe the standard layout of the Cash-Flow
  Statement.

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Standard layout of the cash flow statement
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The Cash-Flow Activity

• The Cash Flow Activity Spreadsheet describes one
  month in the life of ACME Paper Supplies. You
  are asked to use the information given to
  construct a Balance Sheet, a Profit Loss
  Account and a Cash Flow Statement.
• One of the Important elements here is to ensure
  that all of your statements agree.

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This panel shows the effect of each transaction
on the Balance Sheet.
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The February Balance Sheet has been amended as a
result of the transactions.
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This panel shows the effect of each transaction
on the Profit Loss Account
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The February Profit and Loss account has been
constructed from the information in the previous
slide.
Compare Balance Sheets (Jan/Feb) (Retained
Profit)
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The Cash-Flow ActivityP L v Balance Sheet

• The Balance Sheet shows
• January Retained profit 56,000
• February Retained profit 60,500
• This is an increase of 4,500
• The P L Account Shows
• February Surplus 4,500

The Profit Agrees
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This panel shows the effect of each transaction
on the Cash Flow
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The February Cash Flow has been constructed from
the information on the previous slide.
Tax demanded, but not paid!
Compare increase in Bank on Balance Sheets (Jan
to Feb)
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The Cash-Flow ActivityCash Flow v Balance Sheet

• The Balance Sheet shows
• January Bank Balance 10,000
• February Bank Balance 19,500
• This is an increase of 9,500
• The Cash Flow Statement shows
• February Cash Inflow 9,500

The Cash Agrees
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Final Check

• For the final part of this activity, we will
  deduce the Net Cash Inflow from Operating
  Activities, via the indirect method.

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The Cash-Flow Statement 2

• State what is meant by the direct and indirect
  methods of deducing the Net Cash-Flow from the
  Operating Activities, explaining briefly the
  difference between them.
• For the Indirect method of calculating the net
  cash-flow, state the list of items, taken in
  order, that you would need to include in your
  calculations.
• Cash Flow Activity Spreadsheet

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The indirect method of deducing the net cash flow
from the operating activities
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The Net Cash Flow from Operating Activities has
been calculated from the information in the 2
Balance Sheets and the P L Account.
Compare Cash Flow (1st item) Agrees
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Summarising

• Describe the relationship(s) between
• The Balance Sheet
• The Cash-Flow Statement
• The Profit Loss Account

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The relationship between the balance sheet, the
profit and loss account and the cash flow
statement