Statement of Cash Flows | Intro

Cash received from customers
➛ Cash Inflow

Cash paid for rent
➛ Cash Outflow

Owner invests cash
➛ Cash Inflow

Purchase of equipment for cash
➛ Cash Outflow

Bank loan received
➛ Cash Inflow

Classify each transaction

Cash vs Profit



Task
Explain how profit can exist even though cash decreased.

Even though the business made a net income of 20,000, cash decreased because

➛ Cash may have been used to buy assets
➛ Cash may have been used to repay loans
➛ Revenue may include credit sales | not yet collected in cash

Profit is based on accrual accounting, not cash movement.

Cash flow and profit are the same.
➛ False

Buying equipment affects cash flow.
➛ True

Loan proceeds are operating activities.
➛ False

Cash received from customers is an operating activity.
➛ True

Statement of Cash Flows explains changes in cash balance.
➛ True

A profitable retail shop struggles to pay suppliers on time.

Questions

Which financial statement best explains this problem?
➛ Statement of Cash Flows

Why can a profitable business face cash shortages?
➛ Cash tied up in inventory, receivables, or asset purchases

Which section shows cash from daily operations?
➛ Operating Activities

Where would loan proceeds appear?
➛ Financing Activities

Why is cash flow analysis important for managers?
➛ Ensures the business can pay expenses and survive

What is the purpose of the Statement of Cash Flows?
➛ To show cash inflows and outflows during a period

Name the three sections of the statement.
➛ Operating, Investing, Financing

Equipment purchase is an operating activity.
➛ False

Which activity includes owner investment?
➛ Financing Activities

What does net cash flow represent?
➛ Net difference between cash received and cash paid

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Comprehensive Financial Statement Preparation ➧ Here