Hi, I need to know, how can current assets and current liabilities balances can be used in preparation of a cash flow statement.

Help would be greatly appreciated.

Thanks

Please see:

Glossary terms cash flow :-

UK Business Plan Software and Free Sample UK Business Plans - Bplans.co.uk

Current assets and current liabilities balances has nothing to do with the preparation of a cash flow statement.

Hi thanks for your reply.

I have been given that question for research.

Are you sure that current asset and current liabilities have nothing to do with the preparation of cash flow statement?

Thanks

Quote:

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Originally Posted by ROLCAM

Please see:

Glossary terms cash flow :-

UK Business Plan Software and Free Sample UK Business Plans - Bplans.co.uk

Current assets and current liabilities balances has nothing to do with the preparation of a cash flow statement.

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Hi thanks for your reply.

I have been given that question for research.

Are you sure that current asset and current liabilities have nothing to do with the preparation of cash flow statement?

Thanks

Current Assets and Current Liabilities don't directly have to do with cash flows, but they absolutely do have to do with the preparation of a cash flow statement.

In the indirect method for the operating section, you are starting with net income, which does not equate with cash flow. So you make a series of adjustments to sort of "work back" to the actual cash flow from operations.

There are more adjustments than this, but the current assets and liabilities are to adjust from accrued to cash. (Just for instance, if you charge an expense that you will pay later, you've got that expense on your income statement but no cash has been paid out yet - so they don't match.)

You are comparing the beginning and ending balances in each of the accounts, whether those balances are increasing or decreasing and by how much.
The rules are:
Current Assets: you want to adjust the opposite direction from the change in balance. (Subtract an increase and add a decrease.)
Current Liabilities: you want to adjust the same direction as the change in balance. (Add an increase and subtract a decrease.)

For instance, Accounts Receivable is an asset. If that balance increased $1000, you want to subtract it on the cash flow. Accounts Payable is a liability. If it had increased $1000, you would want to add that. I would suggest doing all current assets at once, then doing all current liabilities at once, as it's easier to keep one rule in your head at a time.

Oh, and don't forget not to include cash in that. After all, the entire statement is the change in cash. :-) There might be some other exceptions but I'd have to know what accounts you have.

Remember, this is all indirect method. If you're doing direct method, those accounts would be used to do some stuff, but only as a means to an end - you don't actually see them on the statement itself. Those rules are harder to go over, and I have a tendency to forget them myself. (Hate the direct method.)

Thanks for your great answer! That really helped me understand the current assets and current liabilities :).

Do you have any contact information? So if I have any problems in the future I can consider your advice.

Thank you once again.

You're welcome. Technically, you're supposed to post all questions on the forums themselves and not be taking stuff off privately. This is just voluntary for us, so we're not giving any preference of one person over another, plus they like for everyone to benefit from the posts.

If you post it here and I'm around and see it, I'll certainly be happy to answer if I can.

(The only exception is if you see someone's profile that has a charge per minute, which is private paying stuff. But I'm not set up to do that.)

Wow this is awesome, I got exactly the same question for my "mini" research assignment. *caugh* in AUT, Im guessing we're in the same page =P