Viva

Submitted to:
Dr Waseem Ullah
Submitted by:
Ayesha Muzaffar (22020920-095)
Javeria Arshad (22020920-079)
Muhammad Ibrahim (22020920-099)
(Section B)
Course Title:
Financial Accounting II
Course code:
MGT-324
 1. What is a cashflow statement?
A Cash Flow Statement, also known as a Statement of Cash Flows, is a financial report that provides an
overview of how cash and cash equivalents have moved in and out of a company over a specific period.
It's one of the three key financial statements in accounting, alongside the Income Statement and the
Balance Sheet. The Cash Flow Statement helps to analyze a company's liquidity, solvency, and overall
financial health by showing the sources and uses of cash during a given accounting period.

2. What is cash and cash equivalent?

Cash and cash equivalents are financial assets that are highly liquid and can be quickly converted into
cash with minimal risk of loss. They are reported on a company's balance sheet as part of its current
assets. Cash equivalents are short-term investments that are very close to maturity and have a low risk
of value fluctuations.

• Cash on Hand
• Bank Deposits
• Short-Term Marketable Securities: Certificates of Deposit (CDs)
• Commercial Paper
• Money Market Funds
• Treasury Bills
• Short-Term investments

3. Methods of cashflow statement:

Direct Method: The direct method involves directly reporting the cash inflows and outflows
associated with operating activities. It provides a clearer and more detailed picture of the sources and
uses of cash from operating activities. However, it requires more detailed and accurate accounting
records to be maintained.

Under the direct method, operating cash inflows are presented by reporting individual cash receipts (like
cash received from customers) and cash outflows are reported by listing individual cash payments (like
cash paid to suppliers, employees, etc.).

Indirect Method: The indirect method starts with the net income reported on the Income Statement
and then adjusts it to reflect the actual cash generated or used by operating activities. This method
reconciles the differences between accrual accounting and cash transactions.

The indirect method adjusts the net income for non-cash items (like depreciation and amortization) and
changes in working capital (such as changes in accounts receivable, accounts payable, and inventory).

4. Why is cashflow statement done?

Assess Liquidity: Determine if a company can meet short-term obligations.
Show Financial Health: Reveal how cash moves, complementing other statements.
Inform Investors: Provide insight into actual cash flow, not just accounting.
Compare Performance: Enable analysis within and across industries.
Meet Regulations: Required by standards and regulators for reporting.

5. Activities of cashflow statement:

• Operating Activities: These include cash flows resulting from a company's core business
operations, such as sales and purchases of goods and services. Examples of operating activities
include cash received from customers, payments to suppliers, employee wages, and other day-
to-day business transactions.
• Investing Activities: This category covers cash flows related to the acquisition and disposal
of long-term assets, such as property, equipment, and investments. Examples of investing
activities include buying or selling property, purchasing or selling investments, and acquiring or
selling subsidiary companies.
• Financing Activities: These involve cash flows related to the company's capital structure and
financing. This includes activities like issuing or repurchasing stock, issuing or repaying debt, and
distributing dividends to shareholders.

Carig’s Service Company cashflow statement for the year ended 31 st

Dec 2011
Cashflow from operating activities: Rs. Rs.
Net income 5460
Adjustment for:
Depreciation expenses 3600
Cashflow before working capital changes 9060
Decrease in supplies 170
Decrease in Account receivables 2000
Increase in prepaid advertising (140)
Decrease in wages and salaries payable (600)
Increase in tax payable 120
Cashflow generated from operation 106210
Cashflow from investing activities:
Purchased of property, plant and equipment (4000) (4000)
Cashflow from financing activities:
Dividend Paid (3200) (3200)
Increase in cash and cash equivalent during the year 3410
 Analysis of cash and cash equivalent
Rs.
Opening balance of cash and cash equivalent (3500+0+0-0) 3500
Add: Increase in cash and cash equivalent during the year 3410
Closing balance of cash and cash equivalent 6910

Retained Earnings of 2011

Rs.
Opening balance of Retained earnings 5460
Add: Net income 5460
Less: Dividend (3210)
Closing balance 7710

Ocoee Oil Company Income Statement For the year ended Dec 31,
2011

Cashflow from operating activities: Rs. Rs.

Net income 290,000
Adjustment for:
Depreciation expenses 4500
Cashflow before working capital changes 34,400
Increase in inventory (18,000)
Increase in Account receivables (200)
Increase in salaries payable 200
Increase in account payable 700
Increase in tax payable (200)
Cashflow generated from operation 16,900
Cashflow from investing activities:
Purchased of property, plant and equipment (43,300) (43,300)
Cashflow from financing activities:
Proceeds from issuance of note 20,000 20,000
Decrease in cash and cash equivalent during the year 6,400

Analysis of cash and cash equivalent

Rs.
Opening balance of cash and cash equivalent (6400+0+0-0) 6400
Add: Increase in cash and cash equivalent during the year (6400)
Closing balance of cash and cash equivalent 0
 Retained Earnings of 2011
Rs.
Opening balance of Retained earnings 15,400
Add: Net income 29,900
Closing balance 45,300

Professional Athletics, Inc comparative Balance Sheets

Cashflow from operating activities: Rs. Rs.
Net income 29,000
Adjustment for:
Depreciation expenses 60,000
Cashflow before working capital changes 350,000
Increase in Inventories (22,000)
Increase in Account receivables (28,000)
Decrease in accounts payable 10,000
Cashflow generated from operation 290,000
Cashflow from investing activities:
Purchased of land (60,000)
Purchased of equipment (180,000)
Cashflow from investing activities 240,000
Cashflow from financing activities:
Repayment of loan/redemption of debentures (160,000)
Issuance of shares 100,000
Dividend Paid (27,000) 13,000
Increase in cash and cash equivalent during the year 63,000

Analysis of cash and cash equivalent

Rs.
Opening balance of cash and cash equivalent (47000+0+0-0) 47,000
Add: Increase in cash and cash equivalent during the year 63,000
Closing balance of cash and cash equivalent 110,000

Retained Earnings of 2009

Rs.
Opening balance of Retained earnings 263,000
Add: Net income 290,000
Less: Dividend (27,000)
Closing balance 526,000

Eriksen sporting goods, Inc Cash flow statement for the year ended
Dec 31 2010
Cashflow from operating activities: Rs. Rs.
Net income 190,000
Adjustment for:
Depreciation expenses 60,000
Cashflow before working capital changes 250,000
Decrease in Inventories (110,000)
Increase in Account receivables (8,000)
Decrease in accounts payable 160,000
Cashflow generated from operation 336,000
Cashflow from investing activities:
Purchased of land 50,000
Purchased of equipment (140,000)
Cashflow from investing activities 90,000
Cashflow from financing activities:
Proceeds from sale/ issuance of shares 40,000
Redemption of debenture (120,000)
Dividend Paid (21,000) 101,000
Increase in cash and cash equivalent during the year 145,000

Analysis of cash and cash equivalent

Rs.
Opening balance of cash and cash equivalent (241000+0+0-0) 241,000
Add: Increase in cash and cash equivalent during the year 145,000
Closing balance of cash and cash equivalent 386,000

Retained Earnings of 2010

Rs.
Opening balance of Retained earnings 321,000
Add: Net income 190,000
Less: Dividend (21,000)
Closing balance 490,000