Page 147 - F1 Integrated Workbook STUDENT 2018

Introduction to Single Entity Accounts including Statement of
Cashflows

Solution

Splatter Statement of cash flows for the year ended 30 September 20X1

$000
Cash flows from operating activities

Profit before tax 114
Depreciation 84
Profit on disposal of non-current assets (60)
Finance costs 18
–––
Operating profit before working capital 156
changes
Increase in inventories (42 – 24) (18)
Increase in trade receivables (48 – 42) (6)
Increase in trade payables (30 – 18) 12
–––
Cash generated from operations 144
Both inventory and receivable balances are increasing, hence a reduction in
cash, i.e. the more money tied up in inventory or the more money owed by
receivables the less cash we have available in the bank. Therefore, this is
shown as a decrease in the statement.

Payables also increase but this means we have an increase in cash, i.e. the
more money we owe suppliers, the longer we are keeping the cash in the
bank.

137