Lecture Seven Accountancy and Taxation (Master 1) Mr. MEGHAGHI
1. 7 Cash flow statement
1. 7. 1
Cash inflows and outflows
The cash flow statement shows money actually coming into and going out of a company in
a particular period: cash inflows and outflows.
1. 7. 2 Types of cash flow
Net cash flow from operations is the money generated by the sales of the company’s goods or services, minus the money spent on supplies, staff salaries, etc. in the period.

Net cash flow from investment activities is the result of:
1. Purchases of securities (bonds, shares, etc.) in other companies.
2. Money received from sales of securities in other companies.
3. Loans made to borrowers.
4. Loans repaid and loan interest paid by borrowers.
5. Purchases of land, buildings and equipment.
6. Sales of land, buildings and equipment.

Net cash flow from financing activities is the result of:
1.
2.
3.
4.
5.
Money received through short-term borrowing.
Money repaid in short-term borrowing.
Money received through issuing new shares in the company.
Money received through issuing new bonds in the company.
Dividends paid to shareholders.
Adding and subtracting the figures above, the company calculates its net cash position at the end of the year. Investors check the cashflow statement to see how the company is
obtaining and using its cash - how much it made from its operations, how much it has raised
through new share issues, etc.
'Cashflow' can also be spelled with a hyphen (cash – flow) and as two words (cash flow).
1. Complete the table for a UK company, using the information in passages 1 and 2, and
the facts from the following presentation.
Last year, SBC had a net cashflow from its operations of £550,000. It bought a new
office building for £400,000 and new equipment for £90,000. The company lent £35,000 to
one of its directors so she could buy a new car. SBC paid £50,000 to buy shares in Company
A and obtained £30,000 for shares that it sold in Company B. It received interest of £5,000 on
a loan it had made to another director and sold its old office building for £250,000.
SBC obtained a bank loan for £220,000 that it will have to repay next year. It paid out
£53,000 in dividends to shareholders. It raised £660,000 by issuing new bonds and £800,000
by issuing new share capital. It also repaid a loan of £180,000 that it obtained last year.
Cashflow statement for the year ended 31 December 20--.
(Negative figures are shown in brackets.)
Operating
activities
Net cashflow from operations
Investment
activities
purchases of securities
550,000
(50,000)
money received from sales of shares
in other companies
loans made to borrowers
loans repaid and loan interest paid
by borrowers
purchases of land, buildings and
equipment
(35,000)
5,000
sales of land, buildings and equipment
Net cashflow from investment
activities
Financing
activities
money received through short-term
borrowing
220,000
money repaid in short-term borrowing
money received through issuing new
shares in the company
800,000
money received through issuing new
bonds in the company
dividends paid to shareholders
Net cashflow from financing
activities
NET CASH POSITION AT YEAR END
1,447,000
KEY TO ANSWERS
TABLE COMPLETION
Cashflow statement for the year ended 31 December 20--.
(Negative figures are shown in brackets.)
Operating
activities
Net cashflow from operations
Investment
activities
purchases of securities
(50,000)
money received from sales of shares
in other companies
30,000
loans made to borrowers
(35,000)
loans repaid and loan interest paid
by borrowers
purchases of land, buildings and
equipment
sales of land, buildings and equipment
550,000
5,000
(490,000)
250,000
Net cashflow from investment
activities
Financing
activities
(290,000)
money received through short-term
borrowing
220,000
money repaid in short-term borrowing
(180,000)
money received through issuing new
shares in the company
800,000
money received through issuing new
bonds in the company
660,000
dividends paid to shareholders
Net cashflow from financing
activities
NET CASH POSITION AT YEAR END
(53,000)
1,447,000
1,707,000