1) If you were just starting your own business, what steps might you take to minimize the possibility of failure through over-trading?

2. What information does the cash flow statement provide that is not available from the statement of financial position or the statement of financial performance?

 

3. INTERMEDIATE

6.7 102/3

Classify each of the following items as:

(a) cash or non-cash

(b) if cash, whether an inflow or outflow

(c) if cash, what type of activity (operating, investing, financing).

Cash or non-cash Inflow or outflow Activity

A Credit sales to customers

B Cash received from customers

C Interest paid

D Increase in long-term loan

E Advance to employees

F Bonus issue of shares

G Profit on sale of equipment

H Purchase of equipment

I Depreciation of equipment

J Revaluation upwards of land

K Proceeds on sale of equipment

L Cash paid to suppliers

M Interest received

Classify each of the following items as: 
(a) cash or non-cash 
(b) if cash, whether an inflow or outflow 
(c) if cash, what type of activity (operating, investing, financing). 

1. The most effective approaches to deal with the problem of overtrading are prudent cashflow and strong working capital management. If you're worried about overtrading, you could do things like:

reduce inventory and improve stock control to better match sales and manufacturing cycles
reduce the rate of expansion
Payment arrangements with suppliers should be renegotiated.
establish new (or improved) payment terms for your customers
To enhance your cashflow, instead of cutting costs or injecting new capital, utilize factoring or invoice discounting to lease assets or acquire them on hire purchase.

2.

What the cashflow provides that is not on the statement of financial position.

The cash flow statement illustrates how much cash and cash equivalents are coming in and going out of a business.

The cash flow statement (CFS) is a financial statement that shows how well a firm manages and generates cash to pay debts and cover operating expenses. The cash flow statement is created by taking net income and subtracting or adding the cash from the company's activities, as illustrated below.

The three sections of the cash flow statement are:

Cash generated by operations
Money earned through investment activities
Funding activities generate cash
Activities of Operation
Any sources and uses of cash from business activities are included in operating activities on the CFS. In other words, it reflects how much money a company makes from the sale of its goods or services.

Cash from operating activities includes changes in cash, accounts receivable, inventories, and accounts payable, and may include:

Receipts for goods and services sold
Payments of interest
Payments of income taxes
Payments received from suppliers
Wages and salaries
Investing Projects
Any incoming or outgoing cash from a company's long-term investments falls under this category. Investing activities include the following:

An asset's purchase or selling
Vendor loans or funds received from customers
Payments or credits to cash from a merger or acquisition
Activities of Financing
Cash from investors or banks, as well as the usage of cash to pay shareholders, are examples of these actions. The following are examples of financing activities:

Dividends are cash payments made to shareholders on a regular basis.
Repurchase payments, which lower the number of outstanding shares.
Payment of the principal amount owed (loans)
A balance sheet is a description of a firm's financial balances, but a cash flow statement demonstrates how changes in the balance sheet accounts-and income on the income statement-affect the cash position of the organization. To put it another way, a company's cash flow statement tracks cash in and out of the business, whereas a company's balance sheet tracks assets, liabilities, and equity.

Step-by-step explanation

                                                                                  Cash or non cash                inflow or outflow