Author Archives: Karl

Checking yourself when preparing the statement of cash flows

Cash Flow Connected On the statement of cash flows there are certain disclosed amounts which are all connected as they relate to the same area. When preparing the statement, you can easily check yourself by just adding all those connected amounts and compare it with the change on the balance sheet. If it all equals, you can be sure that you have included and disclosed all information.

For an example, a very easy check is the PPE items on the statement under all sections. You include the acquisitions, take off the depreciation and the difference between the proceeds and loss / gain made from the sale to reach a change in carrying value of PPE on the balance sheet. Basically what you do is add sales, take off depreciation as it decreases the carrying value and also take off the carrying value of sold and disposed goods as this also decreases the carrying value. The result should equal to the change on the balance sheet.
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Help with Cash Flow differences!

You are positive that you included everything possible and needed, did the check to make sure all one off deals are disclosed, made sure that actual cash moved in the amounts stated and still end up with a difference.

In case the difference is small, the easiest way and less stressful then trying to find where it arises, is simply adding it to some line, which cannot be easily matched with something from the main statements and notes. The differences, in case you are sure about all other numbers, can easily be a part of something vague, like fixed assets acquisition – there may easily be invoices still unpaid so the result doesn’t have to match with the acquisitions disclosed in relevant notes anyway.

Also a good thought here is to make sure you add it into a group from which it makes say less than 10%. You wouldn’t want the difference added to affect the line value considerably.
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Cash Flow – After first round, did you get everything?

When preparing statement of cash flows there are things that you always come across – change in inventories, payables and receivables, payment and receiving of loans and fixed assets depreciation, acquisitions etc. These are the first things that are usually entered into the statement and rarely forgotten. You simply have most dealings with those balances daily and as such, you are more used to noticing when they are missing.

After you have entered into the statement all the possible cash flows you know and regardless of its adding up with the actual change in the cash balances or not, think at least once and thoroughly – did you get everything? Are all the transactions and cash flows reflected on the statement?
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How to make yourself a checklist?

How to make checklist There are many things you can make a checklist for, but there are a few simple thoughts to keep in mind when preparing one. In essence making a checklist is easy – you list things and can be done with it, but a well thought through checklist requires just a tiny bit more.

First things first – it all should be considered and prepared as a flow – a flow of process or activities logically grouped and listed. A good checklist enables you to meet deadlines and plan timely, so for an example, it must have things that require additional information from someone else or any prerequisite documents, information obtained as soon as possible, listed as first things that need to be done. For the checklist to be a tool, it requires for it to be logical and reflect the process’ natural course.
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Benefits of a good checklist

Good Checklist There are quite a few checklists out there for various things. But why would someone want a checklist when they know what they have to do by heart and everything is so in routine for them anyway? Because what a checklist in essence is, it is a list of things one should do and you can check things that are done thus enabling you to see actions still need to be taken.

Why? Just because of the very same reason. If there are things in routine, you’re bound to forget some of them. A good and well thought through checklist ensures that you can manage your time better, prioritize your time on right things, have all prerequisite information already at hand, prepare needed documents sooner rather than later, appreciate others’ time and workload planning their resources timely, meet all reporting deadlines and requirements, etc.
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How to reach those “received” amounts on the statement of cash flows?

Received Interest received, Repayments of loans granted, Repayments of loans received etc. – how are they reached? Considering that the period for which the statement is prepared is long and the company has various transactions going through its bank account, manually picking interest received may not be an option. But how should you do it then?

The logic is fairly simple and is similar to the one we already explained in the post How to reach those “paid” amounts on the statement of cash flows? Your beginning or brought forward balance is something you would expect to have received during the current period. In addition, you have current period income, which you’d again expect that part is already received during the period. So you simply add them up. To bring you an example:
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How to reach those “paid” amounts on the statement of cash flows?

Paid On the statement of cash flows there are line items including “paid” within them. Considering that the period for which the statement is prepared for is long and your company does various transactions over the year, picking out for an example all interest payments from the bank account abstract isn’t really efficient. But then how do you reach to for an example “paid interest” amount?

The logic is fairly simple when you think about it. Your beginning or brought forward balance is something you would expect to pay during the current period. In addition, you have current period expense as well, from which you’d again expect that part is already paid during the period. So you simply add them up. To bring you an example:
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