Cash flow

You’ll need (please remember this in future too) to give me the reference to the question where we are adding back $350,000 investment / rental income

The idea of a statement of cash flows is to take as a start point the ACCRUALS based results (particularly profit before interest and tax) and convert it through adjustments to arrive at a statement of CASH flows

With reference to administrative expenses and distribution costs, the accruals based figure in the statement of profit or loss is adjusted when we take into account the changes in working capital

If the only amount within current liabilities was, say, 80 electricity accrual brought forward and there was 120 current liability for electricity carried forward, and a charge for electricity of 380 in the statement of profit or loss, how much CASH have we paid for electricity? 340

But we don’t have all that detailed information about the make up of the accruals figure in the statements of financial position, so we need to do it in total

We start with the figure in the statement of profit or loss and then we adjust for the movement in current liabilities (as one of the three elements of ‘changes in working capital):

“Increase in current liabilities (120 – 80) 40”

and that’s an ‘inflow’ so we add it to profit before interest and tax (the same as an increase in current assets (an outflow) would be deducted from profit before interest and tax)

OK?