Question

In: Accounting

Describe the nature of the accounting information that is provided in a typical Cash Flow Statement...

  1. Describe the nature of the accounting information that is provided in a typical Cash Flow Statement that is included in the Annual Report of most companies. You should include a typical Cash Flow Statement in your answer but it is not necessary to show any figures.   

  1. Discuss the usefulness of a Cash Flow Statement in the financial management of the company.   

  1. Discuss the significance of the following information that appears in the Annual Report of companies that are quoted on a stock exchange.

(i)            segmental information

(ii)           audit report

(iii)          the accounting policies

Solutions

Expert Solution

(a) A cash flow statement provided information about the movement of cash in and out of the firm during the year. The same is divided into Operating, Investing and Financing activities.

Cash flow from Operating activities
Net Income xxx
Adjustment to reconcile net income:
Add: Depreciation/ Loss on sale of any asset/ Amortization xx
Less: Gain on sale of asset (xx)
Add: Increase in current liabilities/ Decrease in current assets xx
Less: Decrease in current liabilities/ Increase in current assets (xx) xx
Net cash from Operating activities xxx
Cash flow from Investing activities
Purchase of long term assets for cash (xx)
Sale of long term assets in exchange for cash xx xx
Cash flow from financing activities
Issuance of common stock for cash xx
Cash dividend paid (xx)
Repayment of long term notes (xx)
Long term notes issued xx xx
Net increase/decrease in cash and cash equivalents xxx
Add: opening cash balance xxx
Closing cash balance xxx

(b) The purpose of the cash flow statement is to show where an entities cash is being generated, and where its cash is being spent . It is important for analyzing the liquidity and long term solvency of a company. A cash flow report determines whether a business has enough cash to repay its approcahing liabilities.

(c)

(i) Segmental information: To help users of financial statements better understand and make more informed judgements about the enterprise as a whole

(ii) Audit report: To assess the entity's financial performance and financial position for any investment opportunity, whether the company has performed ethically during the year, and whether any material misstatement are presented in the financial statement, and to insure that the information provided is accurate and reliable.

(iii) Accounting policies: These are the specific policies and procedures that are used by a company to prepare its financial statement. It is important to enusre whether the policies followed are correct, whether they are accepted by law. We should also ensure whether these policies are properly carries forward from the last year, and if there is any change, such change should be properly reflected in the annual report


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