Module 4 The Cash Flow Statement Omar ElKheshen – kheshen@gmail.com 1 Learning Objectives By the end of this module you should understand: 1. The need for a cash flow statement in addition to a profit and loss account and balance sheet 2. That profit is not the same as cash 3. The major sources and uses of cash and how these are compiled into a cash flow statement 4. How to interpret a cash flow statement, in particular the critical importance of cash flow from operations Omar ElKheshen – kheshen@gmail.com 2 Agenda 4.1 Introduction 4.2 Why Are Cash Flow Statements Needed? 4.3 What Is ‘Cash’ in a Cash Flow Statement? 4.4 Cash: Where Does it Come from? Where Does it Go to? 4.5 Eight Major Categories of Cash Flow 4.6 Worked Example with Commentary 4.7 Do-it-Yourself Example Review Questions Case Studies Omar ElKheshen – kheshen@gmail.com 3 We will use the cash flow statement of the sole trader encountered in Module 1 and analyze how we’ve derived its main figures Cash Flow Statement For the Period Actions 1–7 The cash flow statement portrays only those economic events of a business which affect its cash flows Omar ElKheshen – kheshen@gmail.com 4 Agenda 4.1 Introduction 4.2 Why Are Cash Flow Statements Needed? 4.3 What Is ‘Cash’ in a Cash Flow Statement? 4.4 Cash: Where Does it Come from? Where Does it Go to? 4.5 Eight Major Categories of Cash Flow 4.6 Worked Example with Commentary 4.7 Do-it-Yourself Example Review Questions Case Studies Omar ElKheshen – kheshen@gmail.com 5 The P/L Account and the balance sheet are not enough to tell what is going on in an organization P/L Account Reflects the flow of resources throughout the financial year Measurement of accomplishment and efforts is NOT in cash due to the accounting principles Balance Sheet Reports on inventory of resources and claims against these resources at the end of the financial year The movement of cash during the accounting period is derived from both the balance sheet and the P/L