▪The Cash Flow Statement is required by the

Companies Act as part of published financial

statements of a company.

▪The Cash Flow Statement is a tool to analyse

the liquidity position of a company. It shows
why there has been a change in the balance
in the bank account from one year to another.
 What is the CFS?
A cash flow statement identifies the inflow and outflow of cash in a
business during a specific period – it reports on past (historical)
movement of cash in the business and gives answers to how cash
was generated and used in the business.
The cash flow statement reflects the movement of cash of a business
from the beginning of the year to the end of the year. The statement
is prepared on the cash basis.
The statement will indicate the movement of cash – whether
the bank balance has increased or deceased during the
accounting period.
Think cash
What is cash?
Cash includes the following:
• cash in the bank account
• cash on hand, e.g. petty cash and cash float
• highly liquid short-term (three months
maximum) investments, normally held for
paying short-term debts rather than for the
purpose of earning an income (interest and
dividends).
What does NOT appear in the CFS?

All non-cash items

•depreciation
•bad debts
•discount received / allowed
•profit / loss on sale of fixed assets
CFS gives information on:
- Was sufficient cash generated from operations
to pay the interest, dividends and income tax?
- Where was the money from the additional loan
used?
- How was the expansion of the business used?
- Why was cash available in the bank account
during the previous year and now the business
is in overdraft?
Cash flow statement
is about
inflow and outflow
of cash
 The activities of a company can be
classified into 3 categories
Cash Flows from Cash Flows from Cash Flows from
Operating Activities Investing Activities Financing Activities

These are the main

income activities of
Cash flows as a Cash flows
the company result of: involved in the
funding of the
Cash flow as a result Buying and selling activities
of: of Tangible Assets
 Buying and selling of Changes in  The sale and
inventory investments: repurchase of
 Receipts from debtors Fixed Deposits shares
 Payments to creditors  Receiving and
 Paying expenses paying of loans
Sales (Turnover)
Cost of Sales
Gross Profit
Other Operating income
Gross Operating income
Operating expenses
Operating profit
Interest Income
Profit before interest expense
Interest Expense
Net profit before tax
Taxation
Net profit after tax
ASSETS
NON-CURRENT ASSETS
Tangible Assets
Financial Assets
CURRENT ASSETS
Inventories
Trade and other receivables
Cash and cash equivalents
TOTAL ASSETS
EQUITY AND LIABILITIES
SHAREHOLDER’S EQUITY
Ordinary Share Capital
Retained Income
Contributed Capital
NON-CURRENT LIABILITIES
Mortgage Bond
CURRENT LIABILITIES
Trade and other payables
Bank overdraft
Short term loans
TOTAL EQUITY AND LIABILITIES
FORMAT OF THE CASH FLOW STATEMENT:
EXEMPLAR LIMITED
EG LTD - CASH FLOW STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2020

Notes R
Cash flows from operating activities 20 000
Cash flows from investing activities (43 700)
Cash flows from financing activities 48 000
Net change in cash and cash equivalents 2 (7 700)
Cash and cash equivalents at beginning of year 2 19 700
Cash and cash equivalents at end of year 2 12 000
 Notes R

Cash flows from operating activities 20 000

Cash generated from operations 1 51 240

Interest paid (8 840)

Dividends paid *3 (8 500)

Taxation paid *4 (13 900)

 Reconciliation between profit before taxation and cash
generated from operations
Profit before taxation 162 000
Adjustments in respect of: 27 768
Interest paid 15 960
Depreciation 11 808
Operating profit before changes in working capital 189 768
Changes in working capital (15 972)
(Increase) / decrease in inventories (12 516)
(Increase) / decrease in trade and other receivables 34 624
Increase / (decrease) in trade and other payables (38 080)
Cash generated from operations 173 796
Depreciation
It does not involve an outflow of cash – the bank account has not been affected.
Take out of the calculation by adding it back. (It was subtracted from the
profit – now add it back to eliminate)

Interest on loans
It is a financing cost and not an operating activity.
Take the amount out of the calculation and deduct it on the face of the Cash
flow statement. (It was subtracted from the profit – now add it back to
eliminate)

Taxation paid and dividends paid

These amounts must be deducted on the face of the cash flow statement.
(see notes 3 and 4 for calculation of amounts actually paid – outflow of cash)
 Exclude:
SARS (income tax)
Shareholders for dividends
These are shown separately in Notes 3
Current assets and 4

Inventories (increase) / decrease

Trade and other debtors (increase) / decrease
Current liabilities
Trade and other creditors (increase) / decrease
Dr Inventory Cr Dr Debtors Cr Dr Creditor Cr
Increase Decrease Increase Decrease Decrease Increase

Dr Bank Cr Dr Bank Cr Dr Bank Cr

Inflow Outflow Inflow Outflow Inflow Outflow

Inventories
If Inventory increase – there is outflow of funds An outflow
If Inventory decrease – there is inflow of funds of funds
Debtors
must be
If Debtors increase – there is outflow of funds
If Debtors decrease – there is inflow of funds shown in
Creditors brackets, e.g.
If Creditors increase – there is inflow of funds
If Creditors decrease – there is outflow of funds
(R1 000)
 EXPENSES ACCRUED
1 Interest GJ 1 800 1 Balance b/d 1 800
Expense
31 Balance c/d 2 500 31 Interest GJ 2 500
Expense
4 300 4 300
Owing at end of Still owing at end of
previous year current year
1 Balance b/d 2 500

INTEREST EXPENSE
1 Bank CPJ 6 300 1 Expenses GJ 1 800
Accrued
31 Expenses GJ 2 500 31 Profit and GJ 7 000
Accrued Loss
Actual amount paid Cost of Interest for
for interest for the
year
the current
financial year 8 800 8 800
ALTERNATE FORMAT

INTEREST PAID
Amount at the beginning of the year (1 800)
Amount in the Income Statement (7 000)
Amount due at the end of the year 2 500
Amount paid (6 300)
 SHAREHOLDERS FOR DIVIDENDS
1 Bank CPJ 1 000 1 Balance b/d 1 000

31 Balance c/d 4 000 31 Ordinary share GJ 4 000

dividends
5 000 5 000
Owing at end of Still owing at end of Amount paid
previous year current year for dividends
owing at end of
previous year
1 Balance b/d 4 000

ORDINARY SHARE DIVIDENDS

1 Bank CPJ 6 000 31 Appropriation GJ 10 000
Account
31 Shareholders GJ 4 000 31
for dividends
Amount paid for Cost of Total Final dividend
interim dividends Dividends for the
current financial
year
10 000 10 000
ALTERNATE FORMAT

DIVIDENDS PAID
Amount at the beginning of the year (1 000)
Total dividends for the year – interim (10 000)
+ final
Amount due at the end of the year 4 000
Amount paid (7 000)
 SARS (INCOME TAX)
1 Bank CPJ 900 1 Balance b/d 900
31 Bank CPJ 12 300 31 Income Tax GJ 13 500
Balance c/d 1 200
14 400 14 400
Amount Owing at Still owing Tax
paid for tax
during this
financial
end of
previous
financial
at end of
current
financial
obligation
(actual tax)
for the
1 Balance b/d 1 200
year - year year current year
outflow

INCOME TAX
31 SARS GJ 13 500 31 Appropriation GJ 13 500
(Income tax) Account
ALTERNATE FORMAT

TAX PAID
Amount at the beginning of the year (900)
Amount in the Income Statement (13 500)
Amount due at the end of the year 1 200
Amount paid [900 + 12 300] (13 200)
 Notes R

Cash flows from investing activities (43 700)

Purchase of non-current assets *5 (48 500)

Proceeds from sale of non-current

4 800
assets

Investments matured/repaid 0
Investment activities:
• Purchase and sale of assets – must
take into account effect of
depreciation

• Increase or decrease in financial

investments
 EQUIPMENT
Balance b/d Asset Disposal GJ
Bank/ CPJ/CJ Balance c/d
Creditors

Balance b/d

ACCUMULATED DEPRECIATION ON EQUIPMENT

Asset GJ Balance b/d
Disposal
Balance c/d Depreciation GJ

Balance b/d
 EQUIPMENT at CARRYING VALUE
Balance b/d Asset Disposal GJ
CP – ACC DEP CP – ACC DEP
Bank/ CPJ/CJ Depreciation GJ
Creditors
Balance c/d
CP – ACC DEP

Balance b/d
Carrying value at the beginning
of the year
Add asset purchased +
Less Carrying value of asset sold ( )

Less Depreciation ( )

Carrying value at the end of the

year
 2019 2018
Fixed Deposit 100 000 150 000
Find difference between balance at beginning and balance at
end.
If previous > current then investment has matured - INFLOW
2019 2018
Fixed Deposit 400 000 250 000
Find difference between balance at beginning and
balance at end.
If previous < current then investment has been made -
OUTFLOW
 Notes R

Cash flows from financing activities 48 000

Proceeds from issue of shares 36 000

Proceeds from long-term borrowings 0

Payment of long-term loans (20 000)

Ordinary Share Capital
Sale of Number X issue
shares price
Repurchase Number X
of shares repurchase price
 2019 2018
Loan 350 000 500 000
Find difference between balance at beginning and balance at
end.
If previous > current then loan has been repaid - OUTFLOW

2019 2018
Loan 400 000 250 000
Find difference between balance at beginning and
balance at end.
If previous < current then loan has been received -
INFLOW
 Notes R

Net change in cash and cash

2 (7 700)
equivalents
Cash and cash equivalents at
2 19 700
beginning of year
Cash and cash equivalents at end of
2 12 000
year