Active learning ideas
The Statement of Cash Flows is a critical report that explains why a company's cash balance changed during the year. Students learn to use the indirect method, starting with net profit and adjusting for non-cash items and changes in working capital. This helps them understand the vital difference between 'profit' and 'cash'.
Activity 01
Students use 'cash tokens' to represent the flow of money. They start with profit and then add or subtract tokens based on changes in inventory, receivables, and payables to reach the final cash balance.
Why is cash flow information important to external stakeholders?
Activity 02
Provide a scenario of a company with a million-dollar profit but a negative cash balance. Pairs must brainstorm three reasons why this happened (e.g., high credit sales, large equipment purchase).
How does net profit differ from net cash generated from operating activities?
Activity 03
Post various transactions around the room (e.g., 'Paid dividends', 'Sold a van', 'Bought inventory'). Students rotate and tag each as Operating, Investing, or Financing activities.
What types of transactions are classified as investing activities?
A few notes on teaching this unit
Watch Out for These Misconceptions
An increase in an asset (like inventory) is a cash inflow.
An increase in an asset actually represents a cash outflow (you spent cash to buy it). Using the 'Cash Flow Pipeline' helps students see that 'buying' more inventory uses up their cash tokens.
Depreciation is a cash payment.
Depreciation is a non-cash expense that was subtracted to find profit; therefore, it must be added back in the cash flow statement. Peer explanation of why we 'add back' depreciation helps clarify this logic.
Methods used in this brief
Financial Statements of Limited Companies
Guides students through the preparation of the Statement of Comprehensive Income and Statement of Financial Position. Students will incorporate complex year-end adjustments.
8 methodologies
Financial Statement Analysis
Focuses on the calculation and interpretation of profitability, liquidity, and efficiency ratios. Students will evaluate the overall financial performance and position of a business.
8 methodologies