Leaving Certificate Accounting Notes: Cash flow statements

Updated: Nov 25, 2024

Keywords: Leaving Certificate study notes, Leaving Certificate Accounting notes, cash flow statements, cash flow analysis, operating activities, investing activities, financing activities, cash inflows, cash outflows, statement of cash flows, financial statements.

Key Lessons:

Financial Reporting Standards: Cash flow statements are required under FRS 1 to ensure accurate and consistent financial reporting.
Cash vs. Non-Cash Gains: Cash gains increase both profit and cash, while non-cash gains increase profit but not cash.
Profit ≠ Cash: Profit doesn’t always match cash flow due to factors like depreciation, credit sales, and asset purchases or sales.
Purposes of Cash Flow Statements: These statements show cash movements, explain differences between profit and cash, assist in planning, and assess a company’s financial health.
Responsibilities of Directors: Directors must prepare financial statements, ensure compliance with regulations, and protect company assets.

Important Takeaways:

Financial Reporting Standards (FRS): Cash flow statements are required under FRS 1 to provide a clear and consistent overview of a company’s financial activities.
Cash vs. Non-Cash Items: Cash items directly impact both cash flow and profit, while non-cash items, like depreciation, affect profit but not cash flow.
Profit Doesn’t Always Equal Cash: Factors like credit sales, asset transactions, and depreciation explain why a company can show a profit but still face cash flow challenges.
Purpose of Cash Flow Statements: These statements track cash inflows and outflows, assess liquidity, support financial planning, and explain discrepancies between profit and cash.
Director Responsibilities: Directors must prepare and present accurate financial statements, comply with legal standards, and ensure the company’s financial transparency.

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