Accounting for Managers: Interpreting accounting information for decision-making

CONSTRUCTING FINANCIAL STATEMENTS 75

Table 6.5 Cash Flow statement

Net cash inflow from operatingactivities (see Note 1) 115,000

Interest paid −16,000

Taxation (see Note 2) −12,000

Capital expenditure −100,000

Dividends paid (see Note 2) −25,000

Cash outflow before use of liquid resources and financing −38,000

Additional borrowing 50,000

Increase in cash 12,000

Note 1:

Operating profit before interest and tax 100,000

Depreciation charge 20,000

Stock increase (10,000)

Debtors’ increase (15,000)

Creditors’ increase 20,000

Net cash flow from operating activities 115,000

Note 2:

Taxation and dividends are not the same as the amounts shown in the Profit

and Loss account earlier in this chapterbecause of timing differences between

when those items are treated as expenses and when the cash payment is made,

which is normally after the end of the financial year.

An example of a cash flow statement is shown in Table 6.5.
The management of working capital is a crucial element of cash management.

Working capital........................................

Working capital is the difference between current assets and current liabilities (or
creditors). In practical terms, we are primarily concerned with stock and debtors,
although prepayments are a further element of current assets. Current liabilities

Purchase goods on credit CREDITORS Pay suppliers

outflow

STOCK BANK

inflow

Sell goods on credit DEBTORS Receive money

Figure 6.1 The working capital cycle