CASH FLOW

CONTROL
(Self Study)

Presented By:
 Statement of Cash Flows

•Provides information on cash flows from

operations, investing activities, and
financing activities.
•The statement of cash flows relates the
firm's income statement to changes
between the firm's beginning-of-period
and end-of-period balance sheets.
•The objective of the statement of cash
flows is to show the sources of cash and
all the uses of cash during the accounting
 Cash Flow Statement
Statement of Cash Flows for the Period
1/1/xx to 1/1/xx+l
Cash flow from operations (CFO) + /—
$xx
Cash flow from investing (CFI) + /- $yy
Cash flow from financing (CFF) + /-
$zz
Change in the cash account
∆cash
Beginning of period cash +
 Classifying Cash Flows
• Operational Cash Flows
• Investing Cash Flows
• Financing Cash Flows
 Operating Cash Flows
• Receivables.
• Inventories.
• Prepaid expenses.
• Taxes, interest, and miscellaneous payables.
• Deferred taxes.
• Cash sales.
• Cash cost of sales.
• Cash general and administrative expenses.
• Cash taxes.
• Interest paid and received.
• Dividends received.
 Investing Cash Flows
• Purchases of property, plant, and
equipment.
• Investments in joint ventures and
affiliates.
• Payments for businesses acquired.
• Proceeds from sales of assets.
• Investments (or sales of investments)
in marketable securities.
 Investing Cash Flows
• Cash dividends paid.
• Increases or decreases in short-term
borrowings.
• Long-term borrowings and
repayment of long-term borrowings.
• Stock sales and repurchases.
 Cash flow control
• To ensure that funds are available to
support the company’s desired scale
of operations.
• To maintain adequate liquidity.
• To keep credit risk, foreign currency
risk and interest rate risk within
acceptable limits.
• To contribute towards company
profits from investment of surplus
 Organizing for cash flow
• Collecting cash.
• Authorizing payments.
• Making payments.
• Bank accounts and transferring funds
between accounts.
• Arranging overdraft facilities and
loans.
• Investing cash surpluses.
• Foreign currency transactions.
 Methods for Cash Flow
Control
• Netting
• Pooling
• Reinvoicing Center
 Internal Controls of Cash
• Organization and procedural controls
• Authorization
• Physical Controls
• Segregation of duties
• Personnel controls
• Accounting and arithmetic controls
• Supervision
• Management controls
 Change In Cash

∆cash = ∆liabilities + ∆equity -∆non-

cash assets
 Cash Flow Cycle
There is a continuing business
cycle of buying and selling, and
paying for purchases and being paid
for sales. The cash cycle starts with
the payment for raw materials and
ends with the receipt of payments
from customers.
 Measuring cash cycle time
• Sampling
• Ratio Measurement
 Sampling

• Make Profiles of Customers/Supplier.

• Calculate Average of each group.
 Ratio Measurement
Raw material stock turnover
+ Production Cycle
+ Finished goods turnover
= Stock turnover
+ Debtor days
- Average time to pay suppliers
= Cash Cycle
 Just in Time
• Just in time production is driven by
demand, and items are
manufactured only when they are
needed.
• Just in time purchasing is the
matching of purchases as closely as
possibly with usage, so that stocks of
raw materials and components are
reduced to almost zero.
 Cash Flow Time Line
• The time line is a horizontal line
divided into equal periods such as
days, months, or years. Each cash
flow, such as a payment or receipt, is
plotted along this line at the
beginning or end of the period in
which it occurs.
 Working Capital
Stocks
+Debtors
-Creditors
=working capital
 Liquidity
• The degree to which an asset or
security can be bought or sold in the
market without affecting the asset's
price.
• The ability to convert an asset to
cash quickly. Also known as
"marketability".
 Measurement of Liquidity
• Current Ratio
• Quick Ratio
• Cash Ratio
 Cash Management Audit
• Cash management audit is simply a
term for a thorough and systematic
investigation of the systems and
controls for cash management. The
purpose of an audit should be to
consider whether the cash
management system is efficient and
whether it is suitable for current
conditions.
THANKS