Bookkeeping – Cash flow Statement

Bookkeeping - Cash flow statement

Cash flow statement is an integral component of every companies’ financial statements, whether audited or unaudited. The FRS 7 (that governs the calculation and presentation of cash flow) covers only periods starting on or after 1st January 2016.

The primary objective of the standard is to make sure there is uniform presentation of cash flow statement by categorising the cash flows into operating, financing and investing cash flow so to offer more insight on the source of cash flow, or where the cash where spent. This is upmost valuable to the business owners that strives to build up their businesses although this is not an easy task for any bookkeeper in Johor Bahru.

By definition, cash flow in presented in the cash flow statement not include only cash but also highly liquid financial assets such as 3-months fixed deposits that has rather stable fair value that does not fluctuate significantly. However, listed equity investments unfortunately do not meet the definition despite it is easily disposable due to the fact that its value is highly volatile. On the other hand, bank overdraft has to be included in the cash flow calculation since it is owing to bank that is repayable on demand and an essential part of the cash management system.

How Cash Flow is Presented?

Cash flow and be prepared using direct and indirect method as both these methods are allowable in accordance to the Standard (Also read Singapore Accounting Standard, if you are interested). In most case, indirect method is more often seen as its starting point is from Profit and Loss Account that is readily available when preparing the financial statements. Using either method, the cash flow should be classified in 3 categories, being the operating, financing and investing, as mentioned above. FRS 7 offers clear directions on what should be included in each category so ambiguity is minimal.

Preparing a cash flow can be challenging as there is a check against Balance Sheet to ascertain if the cash flow statement if properly prepared. Unless you are very familiar with how the cash flow works, use an accounting firm in Johor Bahru to ensure it is prepared in a manner that is compliance to the Standard and also provides the precise cash-related information about of your company.

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