Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Cash flow
- This topic has 1 reply, 2 voices, and was last updated 6 years ago by MikeLittle.
- AuthorPosts
- November 24, 2017 at 2:32 pm #417821
Hello Sir!
While preparing the cash flows from operating activities let,s say we deducted $350,000 rental income from investment properties but again we include it back in cash flows from investing activities.Why? It was not a real cash flow in operating activities because it was accrued but it was a cash flow in investing activities?
Also one more question
Why we do not include(add or deduct) administrative expenses and distribution costs anywhere in the statement of cash flows?November 24, 2017 at 3:44 pm #417834You’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?
- AuthorPosts
- The topic ‘Cash flow’ is closed to new replies.