CASH FLOW

STATEMENT
 Learning Objectives

To explain how the statement of cash flows

is prepared

To interpret the information presented in the

statement
• Does the Ending Balance of a Cash-
Flow Statement Always Equal the
Cash?
• Cash is king, and it should always balance.
 Objectives of preparing Cash
Flow Statement
• Cash flow statement shows inflow and outflow of cash and cash
equivalents from various activities of a company during a specific period
under the main heads i.e., operating activities, investing activities and
financing activities.

• Information through the Cash Flow statement is useful in assessing the

ability of any enterprise to generate cash and cash equivalents and the
needs of the enterprise to utilize those cash flows.

• Taking economic decisions  requires an evaluation of the ability of an

enterprise to generate cash and cash equivalents, which is provided by the
cash flow statement
 CLASSIFICATION OF ACTIVITIES:
• Cash flow activities are to be 
classified into three categories :This is done to show
separately the cash flows generated / used by these
activities, thereby helping to assess the impact of
these activities on the financial position and cash and
cash equivalents of an enterprise.
• Operating activities
• Investing activities
• Financing activities
 Main heads of Cash Flow statement:

• Cash Flow Statement (Main heads only)

(A) Cash flows from operating activities xxx
(B) Cash flows from investing activities xxx
(C) Cash flows from financing activities xxx
Net increase (decrease) in cash and cash xxx
equivalents (A + B + C) + Cash and cash equivalents
at the beginning xxx = Cash and cash equivalents at
the end xxxx
•
Example with Solution:
Cont…. Solution
ASSETS 31ST march 2012 31st march 2013

Land & Building 40,000 60,000

Plant & Machinery 2,50,000 4,00,000

Stock 50,000 37,500

Debtors 70,000 75,000

Prepaid Expenses 7,000 6,000

Cash At Bank 8,000 9,000

TOTAL 4,25,000 5,87,500

LIABILITIES 31ST march 2012 31st march 2013

Share Capital 2,50,000 3,50,000

Profit & Loss A/c 50,000 80,000

General Reserve 25,000 35,000

Creditors 81,500 1,00,000

Bills Payable 15,000 20,000

Outstanding Expenses 3500 2500

TOTAL 4,25,000 5,87,500

 March, March, March, March,
2012 2013 2012 2013
LIABILITIES (Rs.) (Rs.) ASSETS (Rs.) (Rs.)
Share Capital 1,40,000 1,48,000 Cash 18,000 15,600
Debentures 24,000 12,000 Debtors 29,800 35,400
Reserve for doubtful
debts 1,400 1,600 Stock 98,400 85,400
Trade Creditors 20,720 23,680 Land 40,000 60,000
profit & Loss Account 20,080 21,120 Goodwill 20,000 10,000
2,06,200 2,06,400 2,06,200 2,06,400
• Dividend paid total Rs. 7,000.
• Land was purchased for Rs. 20,000.
• Amount provided for amortization of goodwill Rs.
10,000.
• Debentures paid off Rs. 12,000.
 • Example
1-1-2011 31-12-2011 1-1-2011 31-12-2011

Share capital 1,25,000 1,53,000 Cash 10,000 47,000

Bank loan 40,000 50,000 Debtors 30,000 50,000

Loan 25,000 ------- Stock 35,000 25,000

Creditors 40,000 44,000 Machinery 80,000 55,000

Profit and loss account 1,00,000 1,20,000 Land 40,000 50,000

Building 35,000 60,000

Goodwill 1,00,000 80,000

3,30,000 3,67,000 3,30,000 3,67,000

 Particulars Year 2012
(I) C.F from Operating Activities:
Profit as per profit and loss a/c 20,000
Add/Less: Adjustment for Non-cash/Non-Operating Items
Provision for taxation 3000
Depreciation 9000
Transfer to reserve 9800
Interest Paid on Debentures 200
Cash from Operating Activities before Working Capital Changes 42000
Add/Less: Working Capital Changes
Increase in Receivables (4000)
Decrease in stock 20000
Cash from Operating Activities after Working Capital Changes 58000
Less: Tax paid (8000)
Net Cash Inflow from Operating Activities (a) 50000
(II) Cash Flow from Investing Activities:
Purchase of fixed Assets (20000)
Purchase of Investments (10000)
Net Cash Outflow in Investing Activities (b) (30000)
(III) Cash Flow from Financing Activities:
Interest Paid on Debentures (200)
Repayment of debentures (10000)
Net Cash Outflow from Financing Activities (c) (10200)
Net Cash & Cash Equivalents (a+b+c) 9800
Add: Opening Balance of Cash and Cash Equivalents 20000
Closing Balance of Cash and Cash Equivalents 29800
Format of Cash flow statement with all
activities
 THANK YOU

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