Chapter 8, Problem 11DQ

To determine

Introduction:

Cash and Cash Equivalents

• Cash and Cash equivalents are current assets that form part of the balance sheets and represent the liquid assets of the business. Liquid assets are assets that are readily convertible to cash.

• Cash and Cash Equivalents comprise of Cash and Bank Balances, Short term investments, Treasury Bills etc. Current Assets are assets that are convertible to cash in a period of one year or less.

• The cash flow statements explain the change in cash and cash equivalents of the business for the reporting period by tracking the changes in cash flows from Operating Activities, Investing Activities and Financing Activities for the reporting period.

Cash Flow Statements:

• Cash flow statements are an integral part of the financial statements of a company. They reflect the direction and movement of the cash inflows and outflows during a reporting period. The cash inflows and outflows are segregated into the following activities:

• Cash flows from Operating activities − The cash inflows refer to sales and income from operating activities and cash outflows include both cash and non-cash outflows from the operating activities i.e. the day to day activities of the business.

• Cash flows from Investing activities − The cash inflows refer to sales and income from investing activities and cash outflows include cash outflows from the investing activities in the form of purchase of fixed assets and investments.

• Cash flows from Financing activities − The cash inflows refer to income from financing activities such as raising share capital and debt and cash outflows include cash outflows from the financing activities in the form of dividends and interest paid.

To Determine:

Net earnings for the year 2013 and explaining the relation of the changes in cash and cash equivalents to the change in net earnings.