David Jones Case

Discussion:

1. What were David Jones main operating activities during 2010?

"An activity directly affecting an organisations cash inflows and outflows determines its net income and is known as an Operating Activity". (www.businessdictionary.com). Cash inflows are the direct result of sales of goods or services, sale of shares and from income earned on investments which promotes increases in the economic benefits during the accounting period. Cash outflows or expenses result from equipment and inventory purchases, loan payment, salaries and other related expenses. Cash outflow contributes to the depletion of assets and creates liabilities that result in decreases in equity.

(Bazley & Hancock 2010,p.349)

David Jones had significant operating activities during the year 2010 which centred around activities related to receivables, inventory, payables, taxes, provisions, shared based payments expense, depreciation and amortisation expenses, net loss on disposal of assets and liabilities. These activities amounted to the net value of $203 923 000 which is the result of cash inflows and outflows. David Jones received $2 265 537 000 (inclusive of Goods and Services Tax) in returns from customers, Interest received was $268 000 and from Commissions they received $44 838 000. The expenses incurred included; payments to the supplier and employees $2 051 719 000 (inclusive of Goods and Services Tax), borrowing cost paid $7 414 000 and income tax paid $45 587 000.

1.1 What were the main differences between the accruals and cash flow effects of these activities?

Accruals are amounts owing at a point in time where the specific amount owed is not known (Bazley & Hancock 2010,p.184) Accruals also represent liabilities and signify non cash based resources that have economic value to an individual or corporation ( www.investopedia.com). It simply means that accruals would not have an impact on your cash flow because an actual transaction has not yet happened. It is catered for in the cash flow statement as was done by David Jones to the amount of $122 011 000

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(Note 16- other payables and accruals). The finances to facilitate accruals are approximated and adequate funds need to be allocated to cover the cost of this unknown amount.