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Hallo,
I have the following example, and looks like I am doing it wrong:
Stock Yr 1 – 100 Yr 2 – 120
Debtors Yr 1 – 140 Yr 2 -175
Trade creditors Yr 1 – 120 Yr 2 – 140
other creditors Yr 1 – 55 Yr 2 -75Find the cash flow at end of yr 2? – Answer is 15 000 outflow
And my thinking is:
Stock – increase = 20 – inflow
Debtors – increase = 35 – outflow
Tr creditors – increase = 20 – inflow
other creditors – increase = 20 – inflow– and I’m getting a different answer, where am I wrong?
Thank you!
Before I answer, this must be an old example!! We no longer use the words stock, debtors or creditors. The names changed many years ago now, and the exam will not use these words.
Stock is now Inventory; debtors is now Receivables; and creditors are now Payables.
This question relates to cash flow statements and I really do suggest that you watch the free lecture.
The relevance is when we are trying to ‘convert’ the profit in the Statement of profit or loss into a ‘cash’ profit (i.e. the cash generated from operations).If we have increased inventory then we have paid out more cash to increase it. So an outflow of 20.
If receivables have increased, then customers are taking longer to pay, and we have less cash. So an outflow of 35.
If payables have increased, then it means we are delaying paying suppliers and therefore we have more cash. So an inflow of 20 for trade payables, and an inflow of 20 for other payables.
So in total, outflows of 55 and inflows of 40. So a net outflow of 15.
Again, you really must watch the lecture on Statements of cash flows.
Hallo,
I see my mistake, I confused stock of inventory, with stock as investment.
Thank you!
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