Cash comprises cash on hand and demand deposits.
Cash equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash and are subject to an insignificant risk of changes in value.
Data for illustration
£
Statement of financial position (balance sheet)
Year 2 Year 1
Total current assets
Total assets
Financial Accounting
Total liabilities
£
£
Both are allowed by IAS 7.
Both give the same answer for operating cash flow.
Indirect method emphasises management of working capital.
Direct method gives information that is not available elsewhere in the annual report.
Financial Accounting
Adjusted profit
Net cash inflow from operating activities
Net cash used in investing activities
Net cash used in financing activities
Line 1 Cash flows from operating activities
Line 2 Profit before taxation
Financial Accounting
Line 3 Adjustment for items not involving a flow of cash
Line 4 Adding back depreciation, amortisation, gain or loss on disposal, etc.
Line 5 Adjusted profit
Subtotal line
Line 6 Increase/decrease in inventories (stocks)
Increase inventories, use up cash; reduce inventories, release cash
Line 7 Increase/decrease in trade receivables (debtors)
Increase debtors, reduce cash flow; decrease debtors, increase cash flow
Line 8 Increase/decrease in prepayments
Increase prepayments, use more cash; decrease prepayments, reduce the need for cash
Line 9 Increase/decrease in cash due to (increases)/decreases in current assets
Subtotal
Line 10 Increase/decrease in trade payables (creditors)
Line 11 Increase/decrease in accruals
Increase accruals (unpaid expenses), reduce the need for cash; reduce accruals, use up cash faster
Line 12 Increase/decrease in cash due to increases/decreases in liabilities
Subtotal
Line 13 Increase/decrease in cash due to working capital changes
Financial Accounting
Line 14 Cash generated from operations
Subtotal
Line 15 Interest paid
Cash paid in the period
Line 16 Taxes paid
Line 17 Net cash inflow from operating activities
Subtotal
Line 18 Cash flows from investing activities
Start of second major section
Line 19 Purchase of non-current assets
Cash paid for non-current (fixed) assets
Line 20 Proceeds from sale of non-current assets
Line 21 Interest received
Cash received as interest on deposits or loans made
Line 22 Dividends received
Line 23 Net cash used in investing activities
Subtotal
Line 24 Cash flows from financing activities
Financial Accounting
Line 25 Proceeds from issue of share capital
Cash received equals increase in nominal value plus increase in share premium reserve
Line 26 Proceeds from long-term borrowings
Line 27 Dividends paid
Dividends paid during the financial year (usually proposed dividend from previous year plus
interim of current year)
Line 28 Net cash used in financing activities
Subtotal
Line 29 Increase/(decrease) in cash and cash equivalents
Financial Accounting
(Lines not used)
Net cash inflow from operating activities
Net cash used in investing activities
Net cash used in financing activities
Line 2 Cash receipts from customer
Cash received from customers
Line 3 Cash paid to suppliers
Cash paid to suppliers (check that cash paid = purchases of the period + payables at start
payables at end)
Financial Accounting
Line 4 Cash paid to employees
Usually, there are no wages or salaries unpaid at the end of a period.
Lines 1431: Same as for indirect method
Cash comprises cash on hand and demand deposits.
Cash equivalents are short-term, highly liquid investments that are readily convertible to
known amounts of cash and are subject to an insignificant risk of changes in value.