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Hi John
https://youtu.be/ZmXfBE6xAaU?t=410
At the 6:50 mark in this video, you said that the profit/loss on a NCA isn’t a cash flow. I’ve thought about this and tried to understand how this may be but I’m struggling a bit unless this is simply an adjustment for the Operating Activities we need to make. If not, can you possibly explain why it isn’t considered a cash flow? Is it because a sale/loss on a NCA may be sold/bought on credit and not paid in cash? Thanks in advance.
Edit – I can see you’ve said a bit later in the video that its specifically the profit on sale of the NCA that’s not a cash item. I’m assuming then that the actual sale of the NCA is considered a cash item, right?
Kind regards
James
If I buy an asset for 100 and sell it for 150, then the cash flows are the original payment and the receipt. The 50 profit is not itself a cash flow.
Hi John
That’s great, thanks for that. In this same video towards the end around 29:15, you’ve said that petty cash and cash may be shown separately and that cash at start is the total of the two. I’m not sure what is meant by at the start? Can you possibly clarify this? Thanks in advance.
Kind regards
James
Also, I’m a bit unclear about why Interest Paid and Dividends Paid fall under operating activities and not investing activities. Is it only Interest Received and Dividends Received that would fall under Investing Activities? Thank you.
Kind regards
James
In addition, what is the difference between Cash flow generated from operations and Net cash from operating activities and why do we split these certain aspects under different headings? Sorry, as you can tell I am struggling a bit with the Cash Flow Statement! Thank you.
Kind regards
James
At the end of the statement we show the total cash at the start of the period. The total cash at the start (and at the end) of the period is the total of all cash balances.
Interest paid and dividends paid are shown under operating activities because that is what the accounting standard requires.
The cash generated from operations is the profit as adjusted to become a cash flow. The net cash from operating activities is the cash generated from operations less interest paid, dividends paid, and tax paid.
Again it is as required by the accounting standard and you just have to learn the layout of the statement.
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