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Cash flow

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Cash flow

  • This topic has 1 reply, 2 voices, and was last updated 10 months ago by John Moffat.
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  • Author
    Posts
  • August 12, 2024 at 8:17 pm #709592
    SarahSyed
    Participant
    • Topics: 14
    • Replies: 3
    • ☆

    Is it true that:

    1) SOFP is prepared using accrual accounting which means that we record our assets and liabilities when they occur and not when cash is received or paid ?

    2) Is owner’s equity also prepared based on accrual accounting and what about the share capital from shareholders when it is recorded?

    3) SOPL is also prepared using accrual accounting which means our revenue and expenses are recorded when they occur and not when cash is received or paid?

    4) Direct method calculates the cash inflows and outflows of the business regular operations?

    5) Indirect method is however opposite, it is when we start with profit and make cash adjustments until we get net cash flow from operations but do we need to deduct interest and tax because we paid them during the year, is that Right?

    August 13, 2024 at 8:02 am #709608
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Accrual accounting is simply recording income and expenditure when they occur, not when the cash is received or paid.

    That automatically results in what you state in (3) and automatically results in there being receivables/prepayments and creditors/accruals in the SOFP.

    It is not that the SOPL and the SOFP are prepared using accrual accounting – that happens as a result of my first sentence.

    Share capital is recorded when the shares are issued.

    Your last two statements related to the Statement of Cash Flows and are correct (and, of course, both end up giving the same result as I explain in my free lectures).

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