Statement of cash flows meaning

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Practice Note Corporate lawyers frequently need to make sense of a business’s accounts. The term ‘accounts’ is wide-ranging and includes internal reports, commonly called management accounts, as well as statutory accounts produced to satisfy company law. This Practice Note aims to clarify key elements typically found within accounts, enabling you to ask sensible questions, flag areas of risk or strong performance, and ultimately feel more at ease with the information presented. Although most UK corporate entities are companies, some organisations—particularly accountancy and law firms—operate as limited liability partnerships (LLPs). The accounting rules for LLPs are broadly aligned with those for companies, but the tax position differs: the LLP itself is not charged to tax on its profits; instead, the partners (the ‘members’) are responsible for the tax. For further information, see Practice Note: Taxation of UK LLPs. Formal requirements for accounts apply to all companies and LLPs, as well as charities; for very small charities, the accounting requirements may amount to a simple statement of cash...

Practice Note This Practice Note outlines what a complete set of company financial statements should contain for entities reporting under FRS 102 (UK GAAP) or International Financial Reporting Standards (IFRS). It concentrates on the key financial content required in the accounts (the ‘primary statements’), and, save for incidental mentions, does not deal in depth with the accompanying notes. It also considers the various reserves a company may show on its balance sheet, together with a high-level explanation of their permitted purposes. The fundamental principle guiding the preparation of financial statements is that they must present a true and fair view of the company’s income and expenditure, financial position, and cash flows for the relevant reporting period. This does not require precision to the last penny, but it does require that the figures are materially correct. In broad terms, an item is material to the financial statements if its inclusion, or its absence, would affect the economic choices made by the users of those statements. There are several factors that...

Preparing a cash flow statement: Yes/No Do not rely on accruals accounting for the cash flow forecast Omit depreciation and any other non-cash charges from the cash flow forecast Be sure to include partner drawings, distributions and income tax payments Be realistic about the gap between completing work and collecting cash (lock-up) Build in a contingency to cover unexpected costs Include the interest and capital repayments due on the finance being raised Reflect on earlier cash flow forecasts and how accurately you predicted cash flows Consider whether partners must provide their share of the finance required Ensure the arithmetic in the forecast is correct Submit the forecast with a clear explanation of why the finance is needed and how it will generate cash flows to repay the requested funding...