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Performance Measurement and Financial Reporting

Performance Measurement and Financial Reporting. Prof. Riccardo Tiscini. A.Y. 2014-2015. IAS 7: Statement of Cash Flows. Financial Statements. FINANCIAL STATEMENTS. comprise. BALANCE SHEET. CF STATEMENT. INCOME STATEMENT. Financial position at a specific momen t of time.

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Performance Measurement and Financial Reporting

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  1. Performance Measurement and Financial Reporting Prof. Riccardo Tiscini A.Y. 2014-2015

  2. IAS 7: Statement of Cash Flows

  3. Financial Statements FINANCIAL STATEMENTS comprise BALANCE SHEET CF STATEMENT INCOME STATEMENT Financial position at a specific moment of time Summary of revenues and expenses (profitability) for a period of time Summary of cash in and cash out for a period of time + STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY + NOTES TO THE ACCOUNT

  4. Accounting methods for measuring performance ACCOUNTING METHODS CASH-BASIS ACCOUNTING ACCRUAL ACCOUNTING • Records only cash receipts and cash payments • cash receipts = revenues; • cash payments = expenses • Revenues recognized when earned; when firm sells/delivers goods or services • Expenses recorded when incurred (matched with revenues)

  5. IAS 7: Statement of Cash Flows STATEMENT OF CASH FLOWS ITS PURPOSE IS TO SHOW THE SOURCES AND THE USES OF CASH DURING THE ACCOUNTING PERIOD THE CF STATEMENT CAN BE BROKEN DOWN INTO 3 CATEGORIES ACCORDING TO BUSINESS ACTIVITY

  6. IAS 7: Statement of Cash Flows COMPONENTS OF THE STATEMENT OF CF OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES Refer to cash flow received from customers and the amount of cash paid to suppliers, employees and others in carrying out the firm’s operating activity It refers to cash inflows from selling existing land, buildings and equipment and cash outflows for the acquisition of non current assets and for the acquisition of equity or debt instruments of other entities and subsidiaries It refers to cash inflows from short and long-term borrowing and from issues of stocks and cash outflows to pay dividends to shareholders, to repay borrowing

  7. IAS 7: Statement of Cash Flows. Example CLASSIFY CASH FLOWS BY TYPE OF ACTIVITY OPER. Disbursment of € 96,000 to merchandise suppliers Receipt of € 200,000 from issuing common shares Receipt of € 10,000 from customers for sales made last accounting period Receipt of € 11,000 from a customer for goods we’ll deliver next period Disbursment of € 16,000 for interest expense on debt Disbursment of € 25,000 to acquire land Disbursment of € 5,000 to acquire shares of Apple Acquisition of a building (€ 20,000) by issuing note payable to a bank Disbursment of € 7,900 for a patent purchased from its inventor Issue of common shares with market value of € 60,000 to acquire land Disbursment of € 10,000 to reedem bonds at maturity Receipt of € 100 in dividends from Apple relating to shares acquired above FIN OPER. OPER. FIN* INV INV NO IMPACT INV NO IMPACT FIN INV*

  8. IAS 7: Statement of Cash Flows COMPONENTS OF THE STATEMENT OF CASH FLOW OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES Cash Flow from Operating Cash Flow from Investing Cash Flow from Financing >0 FREE CASH FLOW

  9. IAS 7: Statement of Cash Flows Inflows Outflows Operations (OP) Sale of Goods- services Acquisition of Goods- services Investing (INV) Sale of Non Current assets Acquisition of Non Current assets POOL OF CASH Financing (FIN) Issue of Debt And Equity Dividend – Debt Equity reduction

  10. IAS 7: Statement of Cash Flows

  11. IAS 7: Statement of Cash Flows

  12. Relations among Cash Flows A. New, rapidly growing firm C. Mature, stable firm B. Growing firm, more seasoned than A D. Firm in early stage of decline

  13. IAS 7: Statement of Cash Flows To understand the preparation of a CF statement you must understand how changes in cash relate to changes in noncash accounts

  14. IAS 7: Statement of Cash Flows CASH FLOW FROM OPERATIONS DIRECT METHOD INDIRECT METHOD Cash received from customers less cash disbursed to suppliers, employees, lenders, taxing authorities Net income for a period +depreciation +/- gain or loss on disposal +/- Δ working capital

  15. IAS 7: Statement of Cash Flows. INDIRECT M.

  16. IAS 7: Statement of Cash Flows. EXAMPLE * During the year 200X the company declared and paid dividends of € 7

  17. IAS 7: Statement of Cash Flows. EXAMPLE PREPARE A STATEMENT OF CASH FLOWS USING THE INDIRECT METHOD FOR CASH FLOWS FROM OPERATIONS

  18. IAS 7: Statement of Cash Flows. DIRECT M.

  19. IAS 7: Statement of Cash Flows. EXAMPLE REFERRING TO THE EXAMPLE ON THE PREVIOUS SLIDES PREPARE A STATEMENT OF CASH FLOWS USING THE DIRECT METHOD FOR CASH FLOWS FROM OPERATIONS

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