ABSTRACT

Step 2 Classify the sources and uses of cash One figure of special interest in the cash flow statement is the net flow of cash from operating activities. In the balance sheet, the profit and loss account balance has increased by £50 000, the amount of retained profit for the year. But it is usual to include more detail from the profit and loss account itself (page 6). Operating profit before interest and tax is £180 000 (=£110 000 profit after tax + tax charged £50 000 + interest expense £20 000). Tax actually paid is £40 000 (the amount charged of £50 000 less the £10 000 increase in the end-of-year tax liability outstanding). Similarly, dividends actually paid in the year are £50 000 (the total dividends proposed for the year of £60 000 less the £10 000 increase in end-of-year dividends payable). In the format required by FRS 1, changes in working capital are also shown as part of cash flows resulting from operating activities; while interest and dividends, and tax paid, are shown below as separate items. (The IAS 7 format is slightly different.)

GENERAL TRADING LIMITED Cash flow statement, Year ended 31 March 2001

130 50 (90)

Interest and dividends paid (20 + 50) Taxation paid Investing activities Fixed assets Net cash outflow before financing Financing activities Ordinary share capital issued Loans borrowed

Operating activities Profit before interest and tax Less: Increase in stocks

Increase in debtors Less: Increase in trade creditors

£’000

(70) (40)

(100) ( 120)

150 J90

70Increase in cash