LOS ORGANOS DE APOYO 1 LA ADMINISTRACIÓN.

This statement is used by the stakeholder to assess the entity’s solvency. This statement is prepared on an annual basis after the balance sheet and income statement have been completed and focuses on the sources and uses of cash.

The Statement of Changes in Financial Position consists of three sections:

 Operations;

 Investing; and

 Financing;

The purpose of each section is to identify where the organization is generating and spending its cash resources.

This statement focuses on the temporary change in the cash position of the organization.

Determining Sources and Uses of Cash

A source of cash is defined as a change in an account balance that increases the cash position of the organization. If an asset decreases, it results in a cash “source” to the organization because cash resources were not used to replenish the asset. If a liability increases, it is a source of cash since the organization has been able to gain a benefit without utilizing their cash resources.

Alternatively an increase in the value of an asset or a decrease in a liability are uses of cash resources for the organization.

Titles

All Statements of Changes in Financial Position consist of several sections. The first section is the title and has three lines:

Name of the corporation or project,

Statement of Changes in Financial Position For the period ended December 31, 20__.

The three lines allow the user to identify the corporate entity or project, the statement they are reviewing and the specific period that the cash flows relate to.

Operations

This section describes the sources and uses of cash for the organization resulting from the day-to-day operations. Examples are changes in the net income and the

The first major section under this title is net income. This represents the income or loss generated by the entity during the fiscal period. The net income is adjusted by the non-cash line items on the income statement. Non-cash expenses are income or expenses in the period that do not utilize cash resources of the organization. The most common types of non-cash revenues under IFRS are the appreciation or increase in market value of fixed assets in the year. The most common types of non- cash expenses under IFRS are decreases in market value of fixed assets, depreciation and bad debts expense.

Under Private Enterprises Standards the most common types of non-cash expenses under IFRS are depreciation and bad debts expense. They are no impacts on income. The income or expenses are adjusted by the non cash expenses.

The incremental changes in the current assets and current liabilities are the next items to be considered in this section. Each current asset and current liabilities is listed and the incremental change is recorded. Sources of cash are positive amounts and cash uses are negative amounts shown in brackets. As previously stated, decreases in assets and increases in liabilities are sources of cash. Decreases in liabilities and increase in assets are uses of cash.

If the cash from operations is negative, the organization is depleting their cash resources. Management must take appropriate steps to rectify the situation such as reducing discretionary expenses or increasing revenues. If this does not occur, the organization may have a future solvency crisis.

Investing

This section reflects the organization’s uses and sources of cash from the purchase or sale of fixed assets. Increases in the fixed assets are a use of cash. A decrease in fixed assets is a source of cash.

If a property manager determines an organization is relying on the sale of assets to remain solvent, he or she must determine the long-term viability of the organization and the necessary steps to correct the situation.

Financing

This section of the Statement of Changes in Financial Position details the changes in the corporation's long term financing. Listed here are the incremental changes for the long-term liabilities, common stock and treasury stocks. If any of these items increase, they represent a source of cash. A decrease in these items is a use of cash. The dollar value of dividends paid during the year should be reflected as a use of cash.

Conclusion

The property manager must review this statement in detail to determine how the organization is generating and utilizing cash flows and determine the appropriate course of action for the entity. This is a very important step. Many profitable corporations go bankrupt because of improper understanding and utilization of cash flows. Appendix D provides a Balance Sheet for ABC Rental Corporation.

Appendix E contains a Statement of Changes in financial position for ABC Rental Corporation based on the information provided in Appendix D.

The following chart provides a useful tool in determining the effect a change in an account will have on the statement of changes in financial position.

Type of Information Used in SCFP Column 1 Type of Change Increase Decrease By Definition Asset Liabilities Common Stock Incremental Incremental Incremental Use Source Source Source Use Use Net Income Net Loss Dividends Non-Cash Expenses Depreciation Recapture Depreciation Allowance for Bad Debts Under IFRS

Appreciation in s Property Values Market Decreases in Property Values

Totality Totality Totality Totality Totality Totality Totality Totality Source Use Source Use Use Source Use Use Source CLOSING ENTRIES

Closing entries prepare the financial records of the organization for the next fiscal period or year. This involves a journal entry to transfer the balances in the revenue and expense accounts to the retained earnings account. As a result, the revenue and expense accounts will have a zero balance. Most computerized accounting packages will perform this function automatically as a part of their year end procedures. .