EXTENDED KNOWLEDGE

CASH FLOW STATEMENT

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INTRODUCTION OF CASH FLOW STATEMENT
Cash flow statement is an essential part of business. In simple words, cash flow is the money that comes in and out of the business. Preparing the statement cash flow is very important for your business as this will be helpful in analyzing the cash income and expenditures during a designated time period. If you are unaware of the essentiality of cash flow statement and looking for the reliable information on this subject then you have just reach the best online resource.
There are different components to consider while preparing a statement of cash flow. To be successful businessmen one requires preparing funds flow statement and should understand its advantages. Business failures result from poor cash flow management skills. Thus, preparing cash flow statements might always help your business to avoid running out of money. Go ahead and check out our articles to gather major information on cash flow statement and its essential basics.

Definition of 'Cash Flow Statement'

One of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarte

Aim of a cash flow statement;

The aim of a cash flow statement should be to assist users:

· to assess the company's ability to generate positive cash flows in the future
· to assess its ability to meet its obligations to service loans, pay dividends etc
· to assess the reasons for differences between reported and related cash flows
· to assess the effect on its finances of major transactions in the year.

Cash Flow From Financing Activities

Outside financing activities can be related to cash inflows out of primary (new emission) stocks of bonds selling or of additional borrowings submitted by banks on one side, while cash outflows can represent paying back a bank loan, dividend payments or buying back its own common stocks.

Cash Flow From Investing Activities'

When analyzing a company's cash flow statement, it is important to consider each of the various sections which contribute to the overall change in cash position. In many cases, a firm may have negative overall cash flow for a given quarter, but if the company can generate positive cash flow from its business operations, the negative overall cash flow may be a result of heavy investment expenditures, which is not necessarily a bad thing.

Cash Flow From Operating Activities

Operating cash flow is the cash that a company generates through running its business.

It's arguably a better measure of a business's profits than earnings because a company can show positive net earnings (on the income statement) and still not be able to pay its debts. It's cash flow that pays the bills!

You can also use OCF as a check on the quality of a company's earnings. If a firm reports record earnings but negative cash, it may be using aggressive accounting techniques.

PROPERTY PLANT AND EQUIPMENT

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Definition;

Assets of a company having physical existence and expected to be used for a period exceeding one year form a part of property, plant and equipment. Property, plant and equipment are alternatively referred to as tangible fixed assets.

Explanation

An example of a business with a high amounts of PP&E would be a shipping company, because most of its assets would be tied into its fleet of ships and administrative buildings. On the other hand, a management consulting firm would have less PP&E, because a consultant would only need a computer and an office in a building to run its operations.

This item is listed separately in most financial statements because PP&E is treated differently in accounting statements. This is because improvements, replacements and betterments can pose accounting issues depending on how the costs are recorded.
Objective;
             The objective of this Standard is to prescribe the accounting treatment for property,
            plant and equipment so that users of the financial statements can discern information
            about an entity’s investment in its property, plant and equipment and the changes in
            such investment. The principal issues in accounting for property, plant and equipment
           are the recognition of the assets, the determination of their carrying amounts and the
            depreciation charges and impairment losses to be recognised in relation to them.
Important components of property, plant and equipment

Land and land improvements
Buildings
Plant and machinery
Vehicles
Equipment, etc

Property, plant and equipment are tangible items that:

(a) are held for use in the production or supply of goods or services, for rental to
others, or for administrative purposes; and
(b) are expected to be used during more than one period.

The cost of an item of property, plant and equipment shall be recognised as an asset if,

(a) it is probable that future economic benefits associated with the item will flow to
the entity; and
(b) the cost of the item can be measured reliably

Measurement at recognition: An item of property, plant and equipment that qualifies
for recognition as an asset shall be measured at its cost.

The cost of an item of property, plant and equipment comprises:

(a) its purchase price, including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates.
(b) any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by management.
(c) the initial estimate of the costs of dismantling and removing the item and restoring
the site on which it is located, the obligation for which an entity incurs either
when the item is acquired or as a consequence of having used the item during a
particular period for purposes other than to produce inventories during that period.

The carrying amount of an item of property, plant and equipment shall be
derecognised:

(a) on disposal; or
(b) when no future economic benefits are expected from its use or disposal.

BANK RECONCILIATION STATEMENT

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DEFINITION;

A form that allows individuals to compare their personal bank account records

to the bank's records of the individual's account balance in order to

uncover any possible discrepancies.

BANK RECONCILIATION PROCESS;

Step 1. Adjusting the Balance per Bank
We will demonstrate the bank reconciliation process in several steps. The first step is to adjust the balance on the bank statement to the true, adjusted, or corrected balance.

1;Deposits in transit
Deposit in transit are amounts already received and recorded by the company, but are not yet recorded by the bank

2;Outstanding checks
Outstanding checksare checks that have been written and recorded in the company's Cash account, but have not yet cleared the bank account.

3;Bank errors
Bank errors are mistakes made by the bank. Bank errors could include the bank recording an incorrect amount, entering an amount that does not belong on a company's bank statement, or omitting an amount from a company's bank statement.

Step 2. Adjusting the Balance per Books
The second step of the bank reconciliation is to adjust the balance in the company's Cash account so that it is the true, adjusted, or corrected balance..

1;Bank service charges
Bank services charges are fees deducted from the bank statement for the bank's processing of the checking account activity .Because the bank service charges have already been deducted on the bank statement, there is no adjustment to the balance per bank. However, the service charges will have to be entered as an adjustment to the company's books. The company's Cash account will need to be decreased by the amount of the service charges

2;Not Sufficient Fund Check
Nsf is a check that was not honored by the bank of the person or company writing the check because that account did not have a sufficient balance. As a result, the check is returned without being honored or paid.

3;Notes Receivable
Notes recivable are assets of a company. When notes come due, the company might ask its bank to collect the notes receivable. For this service the bank will charge a fee.

4;Interest earned
intrest earned will appear on the bank statement when a bank gives a company interest on its account balances. The amount is added to the checking account balance and is automatically on the bank statement. Hence there is no need to adjust the balance per the bank statement. However, the amount of interest earned will increase the balance in the company's Cash account on its books.

5;BookErrors
Book error in the company's Cash account result from the company entering an incorrect amount, entering a transaction that does not belong in the account,

Step 3. Comparing the Adjusted Balances
After adjusting the balance per bank (Step 1) and after adjusting the balance per books (Step 2), the two adjusted amounts should be equal. If they are not equal, you must repeat the process until the balances are identical. The balances should be the true, correct amount of cash as of the date of the bank reconciliation

Step 4. Preparing Journal Entries
Journal entries must be prepared for the adjustments to the balance per books (Step 2). Adjustments to increase the cash balance will require a journal entry that debits Cash and credits another account. Adjustments to decrease the cash balance will require a credit to Cash and a debit to another account.

IAS 2 INVENTORIES

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OBJECTIVE
IAS 2 prescribes the accounting treatment for inventories.
In summary, IAS 2 says the following:
Inventory shall be valued at the LOWER of:
Cost or Net realisable value
Cost
IAS 2 states that ‘cost’ should comprise:
• the cost of purchase;
• the costs of conversion; and
• other costs.
‘Other costs’ should only be recognised as those costs that have been incurred in bringing the
inventories to their present location and condition.
Valuation
IAS 2 prescribes two possible valuation methods for inventories. An entity can adopt either:
• the first-in first-out basis (FIFO); or
• a weighted average basis.
Entities are not permitted to use a last-in first-out (LIFO) basis of valuation.
Net Realisable Value
Net realisable value is the estimated selling price in the ordinary course of business, less the
estimate costs of completion and the estimated costs necessary to make the sale.

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CLOSING ENTRIES

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A closing entry are made at the end of accounting period.the closing entry are used transfer data in the temporary accounts to the permanent balance sheet or incom statement accounts.the purpose of closing entry is to bring the temporary journal account balances zero forthe next accountig period which aids in keeping the accounts reconciled.

FORE TYPES OF CLOSING ENTIES;

1; To close revenue accounts;

   revenue account
                     incom summary account
    close revenu account to incom summary account by debiting revenu account and crediting incom summary account

2;To close expenses accounts

incom summary account
                   expenses accont
close expenses account to incom summary account by debiting incom summary account and creditng expenses account all expenses are idvidually closed.

3;To close income summary account

  income summary account
                  retained earning account
close income summary account to retained earning account if retained earning debit in case of loss and if retained earnind credit in case of profit

4;To close divident account;

retained earning account
                 divident account
closing divident to retained earning account by debiting retained earning account and crediting divident account and divident is contra retained earning

CLOSING ENTRIES

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ACCOUNTING CYCLE

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1; COLLECT DATA FROM TRANSACTION;

First of all we collect data from transaction and after the
analyize data.

2;JOURNALIZE TRANSACTION;

After collecting the data of transaction the 2nd step is put the transaction
into journal form

3;POST TO JENERAL LEDGER;

After pas the journal entries the entries posted into
ledger account

4; PREPARE UNADJUSTED TRIAL BALANCE;

At the end of period double entry accounting requaired debited and credits
recorded in the jeneral ledger be equal

5.PREPARE ADJUSTED TRIAL BALANCE

after that adjusted trial balance is prepared in which all the transactions remained left are recorded

6.PREPARE FINANCIAL STATEMENTS

To prepare finacial staements at the end of the accounting period is the primary function of every organisation that includes balance sheet and income statment

7.CLOSING THE ACCOUNTS

After that the revenue and expenses accounts are closed and the balances of assets liabilities and owners equity is forward to the next period