Cash Flow Statement Sample



KAS 8 CASH FLOW STATEMENTS

EXPLANATORY NOTES

Explanatory Notes to Kosovo Accounting Standards are intended to provide additional understanding of the Standards and technical guidance as to their use and application. In case of any divergence between Explanatory Notes and Standards, the Standards prevail.

1. The primary purpose of the Cash Flow Statement is to provide information about an enterprise’s cash receipts and cash payments during the reporting period. A secondary purpose is to provide insight into the enterprise’s investing and financing activities. More specifically, the statement of cash flows should help investors and creditors assess:

• The enterprise’s ability to generate future positive cash flows;

• The enterprise’s ability to meet obligations and pay dividends;

• Reasons for differences between income and cash receipts and payments; and

• Both cash and non-cash aspects of the enterprise’s investing and financing transactions.

Presentation of the Cash Flow Statement

2. The Cash Flow Statement should report cash flows during the accounting period classified by:

Operating activities;

Investing activities; and

Financing activities.

3. Kosovo Accounting Standards do not require a specific format for the Cash Flow Statement, so an organization will classify and present activities in a way that is most appropriate to its business. However, the classification and presentation of similar activities must be consistent between reporting periods (KAS 8.5).

Operating Activities

4. The volume of cash flows arising from operating activities is a key indicator of the organization’s effectiveness in generating sufficient cash to repay loans, maintain the entity’s operating capability, pay dividends, and make new investments without recourse to external sources of financing (KAS 8.7).

5. Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity. Examples of the cash flows from operating activities include:

|Cash inflows |Cash outflows |

|cash receipts from the sale of goods and services |cash payments to suppliers for goods and services |

|cash receipts from royalties (that is, compensation for the use of |cash payments to employees and for other operating expenses |

|patents, copyrights, etc. by others), fees, commissions and other | |

|revenue | |

|decrease in inventories |increase in inventories |

| |payment of interest |

| |payment of taxes |

|increase in current liabilities |decrease in current liabilities |

Investing Activities

6. The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows (8.11). Examples of cash flows arising from investing activities are:

|Cash inflows |Cash outflows |

|cash receipts from sales of land, plant and equipment, intangibles and|cash payments to acquire land, plant and equipment, intangibles and |

|other long-term assets |other long-term assets, payments related to capitalized development |

| |costs, and also for self-constructed plant and equipment |

|cash receipts from sales of shares or debt instruments of other |cash payments to acquire shares or debt instruments of other |

|enterprises (other than payments for those instruments classified as |enterprises (other than payments for those instruments classified as |

|held for sale in accordance with KAS 14) |held for sale in accordance with KAS 14, Financial Instruments) |

|cash receipts from repayment of advances and loans made to entities |cash advances and loans made to other entities |

|cash receipts for dividends and interest on investments | |

Financing Activities

7. The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of capital to the enterprise (8.12). Financing activities are activities that result in changes in the size and composition of the reporting enterprise’s equity capital and borrowings. Examples of cash flows arising from financing activities are:

|Cash inflows |Cash outflows |

|cash proceeds from issuing shares |cash payments for redeeming the enterprise’s shares |

|cash proceeds from issuing notes, bonds, mortgages and other short or |repayment of loans (other than interest or creditor payments related |

|long-term borrowings |to operating activities) |

| |payments of dividends to shareholders |

| |cash payments by a lessee for the reduction of the outstanding |

| |liability relating to a finance lease |

Non-cash Transactions

8. Non-cash transactions that are of an investing or financing nature are not included in the cash flow statement. These include the acquisition of fixed assets by long-term credits or finance leases; settlement of accounts payable by non-cash means, such as issuing and transferring additional shares to the creditors; or transfers between one non-cash item and another.

9. As examples, a company may acquire land and buildings by borrowing under a long-term mortgage, or it can convert long-term bonds into common stock. These transactions present rather common investing and financing activities, but they are not reflected in the cash flow statement because they do not involve any movements in the company's cash or cash equivalents. Instead, significant non-cash transactions such as these should be disclosed separately elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities (8.26).

Presentation Method

10. An enterprise should report cash flows from operating activities using the direct method.

That is, by disclosing the major classes of gross cash receipts and gross cash payments (8.13). Such information may be obtained either from the accounting records or by adjusting sale proceeds, cost of sales, and other income statement items for:

a) changes that occurred in the reporting period in the balances of inventories and operating receivables and payables; and/or

b) non-cash-items; and/or

c) other items that are reported as investing or financing cash flows, such as interest income on investments.

Reporting on a Net Basis

11. An entity should report separately its major classes of gross cash receipts and gross cash payments arising from its investing and financing activities, except in the circumstances, described below, when they are reported on a net basis (8.16). Reporting on a net basis means reporting only the calculated difference between cash receipts and cash payments.

12. Cash flows resulted from operating, investing and financing activities are reported on a net basis if these are cash receipts and payments (8.17):

a) on behalf of customers, such as when the cash flows reflect the activities of the customer rather than those of the entity. For example the receipt and payment of customer balances in a demand deposit account for a bank, or rents collected on behalf of, and paid over to, the owners of the property;

b) for items in which the turnover is quick, the amount are large, and the maturities are short. For example, the purchase and sale of very short-term investments, and other short-term borrowings that have maturity periods of three months or less.

Illustration of Cash flow Statement Preparation

13. Following is an illustration of the preparation of a cash flow statement based on the balance sheet, income statement, and additional transaction information provided.

|Balance Sheet |

|as of December 31, XXX1 |

|Company A |

| |31/12/X0 |31/12/X1 |Difference | |

|Assets | | | | |

|Current assets: | | | | |

|Cash |15,000 |46,000 |31,000 |Increase |

|Accounts receivable |55,000 |47,000 |-8,000 |Decrease |

|Inventory |110,000 |144,000 |34,000 |Increase |

|Prepaid expense |5,000 |1,000 |-4,000 |Decrease |

|Total current assets |185,000 |238,000 |53,000 | |

|Financial investments |127,000 |115,000 |-12,000 |Decrease |

|Fixed assets |505,000 |715,000 |210,000 |Increase |

|Accumulated Depreciation |-68,000 |-103,000 |-35,000 |Increase |

|Total fixed assets |437,000 |612,000 |175,000 | |

|Total assets |749,000 |965,000 |216,000 | |

| | | | | |

|Liabilities | | | | |

|Current liabilities: | | | | |

|Accounts payable |43,000 |50,000 |7,000 |Increase |

|Accrued liabilities |9,000 |12,000 |3,000 |Increase |

|Taxes payable |5,000 |3,000 |-2,000 |Decrease |

|Total current liabilities |57,000 |65,000 |8,000 | |

|Long-term liabilities: | | | | |

|Bonds payable |245,000 |295,000 |50,000 |Increase |

|Total liabilities |302,000 |360,000 |58,000 | |

|Equity : | | | | |

|Ordinary shares, 5 euro par value |200,000 |276,000 |76,000 |Increase |

|Paid in capital in excess of par value |115,000 |189,000 |74,000 |Increase |

|Retained earnings |132,000 |140,000 |8,000 |Increase |

|Total equity |447,000 |60,500 |158,000 | |

|Total liabilities and equity |749,000 |965,000 |216,000 | |

|Income Statement |

|for the year ended December 31, XXX1 |

|Company A |

|Net sales |698,000 | |

|Cost of goods sold |520,000 | |

|Gross margin | |178,000 |

|Operation expenses (including depreciation of fixed assets 37,000 euro |147,000 | |

|Profit from ordinary activities | | 31,000 |

|Other income and expenses from non-operating activities: | | |

|Interest expense |23,000 | |

|Interest income | 6,000 | |

|Gain on sale of securities |12,000 | |

|Loss on sale of fixed assets | 3,000 | |

|Total other income and expenses | | (8,000) |

|Profit before taxes | | 23,000 |

|Income taxes | | 7,000 |

|Net profit | | 16,000 |

The following other transactions, which are not related to operating activities, occurred during the reporting period:

1. Purchased securities for a total amount of 78,000€

2. Sold securities for 102,000€. Book value for those securities was 90,000€.

3. Purchased fixed assets in the amount of 120,000€.

4. Sold fixed assets for 5,000€. Original cost was 10,000€, accumulated depreciation totaled 2,000€.

5. Issued 100,000€ of bonds in a non-cash exchange for fixed assets.

6. Repaid 50,000€ of bonds at maturity.

7. Issued 15,200 shares of 5€ par value common shares for 150,000€.

8. Paid dividends in the amount of 8,000€.

Determining Cash flows from Operating Activities Using the Direct Method

14. The income statement does not disclose cash inflows and outflows because it is prepared according to the accrual concept. Under accrual accounting, income is recognized when earned, regardless of cash inflows, and expenses are recognized when incurred, regardless of whether payment has been made.

15. To identify cash flows from operating activities it is necessary to convert items in the income statement from the accrual basis to the cash basis. These calculated adjustments recognize income only if it was received in cash, and recognizes expenses only if they were paid.

1. Cash receipts from sale

Cash receipts from sales are reflected in the following formula:

|Cash | |Sales | |+ Decrease in accounts receivable |

|receipts from sales| |(from the Income Statement) | |or |

| | | | |- Increase in accounts receivable |

Referring to the balance sheets and income statement for Company A, note that sales were 698,000€ and that accounts receivable decreased by 8,000€. Thus, cash received from sales is 698,000€ + 8,000€ = 706,000€.

2. Cash receipts from interest and dividends

Cash receipts from interest and dividends are classified as cash flows from investing activities (8.24), because they are returns on investments.

Based on the income statement, interest income equals 6,000€. Because there is no interest receivable shown on the latest Balance Sheet, 6,000€ is the amount of interest received in cash .

3. Cash payments for purchases

The amount of cash payments for purchases is calculated based on the following formula:

| | | |+ |Increase in Inventory |

|Cash | |Cost | |or |

|Payments |= |of Goods | |Decrease in Inventory |

|for Purchases | |Sold |- |(Balance Sheet) |

| | |(Income Statement) | | |

According to the income statement, income taxes for the reporting period were 7,000€, and according to the balance sheet, income taxes payable decreased by 2,000€. Cash payments for income taxes are calculated as follows: 7,000€ + 2,000€ = 9,000€.

Cash flows arising from taxes on income should be separately disclosed and classified as cash flows from operating activities unless they can be specifically identified with financing or investing activities (8.25).

Determining Cash flows from Investing Activities

16. Investing activities are usually reflected in the balance sheet, in the "Long-term Assets" section. Transactions that affect short- term investments are reflected in the "Current Assets" section. Gains and losses from the sale of securities and fixed assets are reflected in the income statement. Not all of the information needed to calculate cash flows from investing activities can be found directly in the income statement and balance sheet but may be in the list of other transactions not related to ordinary activities.

1. Investments

Additional information about other transactions, not related to ordinary activities, shows that, during the reporting period, Company A purchased securities in the amount of 78,000€. This was a cash outflow. Company A sold securities that cost 90,000€ for 102,000€, which resulted in a cash inflow of 102,000€.

The decrease of 12,000 shown in the balance sheet under "Financial Investments", can be reconciled as follows:

Financial Investments

|Beginning balance |127,000 |

|Purchases |78,000 |

|Sales |(90,000) |

|Closing balance |115,000 |

2. Fixed assets

In the case of fixed assets, it is necessary to analyze both asset accounts and the related accumulated depreciation accounts. Three items listed in the schedule of other transactions affect fixed assets:

1. Purchase of fixed assets in the amount of 120,000€ results in a cash outflow

2. Sale of a fixed asset that cost 10,000€ with accumulated depreciation of 2,000€ for 5,000€ results in a cash inflow of 5,000€.

3. Issuance of 100,000€ in bonds in a non-cash exchange for fixed assets: Although this transaction does not involve an inflow or outflow of cash, it is a significant transaction involving an investing activity (the purchase of fixed assets) and a financing activity (the issue of bonds payable). This transaction is disclosed in the notes to the financial statements (8.26).

Increases of 210,000€ and 35,000€ are shown in the balance sheet under "Fixed Assets" and "Accumulated Depreciation" and are reconciled as follows:

Fixed Assets

|Beginning balance |505,000 |

|Purchases |120,000 |

|Non-cash purchases |100,000 |

|Sale |-10,000 |

|Ending balance |715,000 |

Accumulated Depreciation

|Beginning balance | -68,000 |

|Depreciation expenses |-37,000 |

|Acc depreciation on asset sold |2,000 |

|Ending balance |-103,000 |

Determining Cash flows from Financing Activities

17. This section of the cash flow statement includes cash flows related to long-term liabilities and stockholder's equity accounts, as well as information about the dividends that have been paid.

1. Bonds payable

The balance sheet shows that bonds payable increased by 50,000€. This account is affected by transactions 5 and 6 from the schedule of other transactions:

4. Issuance of bonds in a non-cash exchange for fixed assets;

5. Repayment of 50,000€ of bonds at maturity results in an outflow of cash.

The increased of 50,000€ in the balance sheet under "Bonds Payable" may be reconciled as follows:

Bonds Payable

|Beginning balance |245,000 |

|Non-cash issue |100,000 |

|Repayment |-50,000 |

|Ending balance |295,000 |

2. Common shares

According to the balance sheet, the account "Common Shares" increased by 76,000€, and "Paid-in Capital in Excess of Par Value" by 74,000€ during the reporting period. These changes are explained by transaction 7 from the schedule of other transactions, in which Company A issued 15,200 shares of stock at a par value of 5€ and sold them for 150,000€. This corresponds to changes in the equity accounts of the balance sheet: (150,000€ =76,000€ + 74,000€)

3. Retained earnings

A decrease of 8,000€ is reflected in the balance sheet under "Retained Earnings". This change is the result of two factors: net profit of 16,000€, shown on the income statement, and dividend payments of 8,000€, per transaction 8 from the schedule of other transactions.

The dividend payment is reflected in the cash flow statement as a cash outflow of 8,000€. The interrelationship between the balance sheet, income statement and cash flow statement relating to the "Retained Earnings" account may be demonstrated as follows:

Retained Earnings

|Beginning balance |132,000 |

|Net income |16,000 |

|Dividends |-8,000 |

|Ending balance |140,000 |

|Company A

Cash Flow Statement

For the year ended December 31, XXX1

Cash flows from operating activities | | | |Cash inflows: | | | |Sales |706,000 | | |Total receipts | |706,000 | |Cash outflows: | | | |Cash payments for purchases |547,000 | | |Operating expenses |103,000 | | |Interest paid | 23,000 | | |Income taxes | 9,000 | | |Total outflows | |682,000 | |Net cash flows from operating activities | | 24,000 | |Cash flows from investing activities | | | |Interest and dividends | 6,000 | | |Purchase of securities | -78,000 | | |Sale of securities |102,000 | | |Purchase of fixed assets |-120,000 | | |Sale of fixed assets | 5,000 | | |Net cash flows used in investing activities | | -85,000 | |Cash flows from financing activities | | | |Repayment of bonds | -50,000 | | |Issue of common shares |150,000 | | |Dividends paid | -8,000 | | |Net cash flows from financing activities | | 92,000 | |Net increase (decrease) in cash | | 31,000 | |Cash at the beginning of year | | 15,000 | |Cash at the end of year | | 46,000 | |

Analysis

18. The enterprise generated net cash flows of 24,000€ from operating activities and 92,000€ from financing activities but used net cash flows of 85,000€ in investing activities. Referring back to paragraph 8.7, the amount of cash flows arising from operating activities (24,000€) did not generate sufficient cash flows to repay loans (50,000€), and make new investments (net amount of 96,000€) without the need to rely on external sources of financing (150,000€).

Foreign Currency Cash Flows

19. Cash flows arising from transactions in a foreign currency should be recorded in an enterprise’s reporting currency, using the exchange rate at the date of the cash flow (8.19). Cash flows denominated in a foreign currency are reported in a manner consistent with KAS 11, The Effect of Changes in Foreign Exchange Rates, which permits the use of an exchange rate, for example a weighted average rate, that approximates the actual rate (8.20).

Unrealized Gains and Losses

20. Unrealized gains and losses arising from changes in foreign currency exchange rates are not cash flows (8.21). However, the effects of exchange rate changes on cash and cash equivalents held or due in a foreign currency is reported in the cash flow statement in order to reconcile cash and cash equivalents at the beginning and end of the period. This amount is presented separately from cash flows from operating, investing, and financing activities and includes the difference, if any, had those cash flows been reported at end of period exchange rates.

Extraordinary items

21. The cash flows associated with extraordinary items should be classified as arising from operating, financing, or investing activities, as appropriate, and separately disclosed (8.22). This is to enable users to understand their nature and effect on the enterprise’s present and future cash flows and are in addition to the separate disclosures of the nature and amount of extraordinary items required by KAS 5, Net Profit or Loss for the Period, Fundamental Errors, and Changes in Accounting Policies.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download