Unit 3

drafts. . coin or paper currency. cheques.ƒ Ready money. bonds. especially. or any paper easily convertible into money. but also applied to bank notes.

This statement shows the reasons for changes in cash balances during two balance sheet periods.ƒ ƒ Cash flow statement is the statement. . which depends the inflow and outflow of cash and equivalents during the specified period in an organization.

C. Cash Flow Statement is a statement setting out the flow of cash under different heads of sources and their utilization to determine the requirements of cash during the given period and to prepare for its adequate provisions. (India).ƒ According to I.A.W. .

Operating 3. Investing 2.ƒ Primary Objective: Finding Liquidity position & doing analysis of cash inflow & outflow ƒ Secondary Objective: Dividing cash flows into three categories 1. Financing & then analyzing the cash flows .

ƒ ƒ ƒ ƒ ƒ ƒ Helpful in short term policies of financial planning Useful in preparing cash budget Knowledge of solvency Helpful in internal financial control Useful to external investors Study of trends of cash receipts and payments from various activities .

ƒ ƒ ƒ ƒ Not a substitute of Income Statement Liquidity is not only cash Does not consider Accrual System Can be misleading in comparison .

Basis of Difference Meaning Use Basis of Accounting Limitations Fund Flow Statement It refers changes in working Capital Understands Financial Stability & policies Accrual Does not show cash position Cash Flow Statement It refers Movements of Cash Short term financial Analysis Cash Does not show complete picture .

bye-product and spoilage  Collection from customers.ƒ Cash Inflow from operating activity  Cash sale of goods and services  Cash sale of waste.  Rent received from assets let out on rent  Cash dividends and interest received on Investments     ƒ Financing Activities: Issue of debentures for cash Raising loans for cash Issue of shares for cash Discounting of Bills Receivables .receipts from debtors and Bills Receivables ƒ Cash Inflow from Investing Activity  Cash sale of fixed assets and current investments.

production expenses and other operating expenses.ƒ Operational activities:      Cash payment of wages. Cash purchase or raw materials Cash payment to creditors and bills payable Cash payment of income-tax Cash payment of any sum payable under some legal decisions. ƒ Activities relating to the purchase of fixed assets:    Cash purchase of fixed assets Cash expenses on the extraordinary repairs of plant and other equipments Cash purchase of temporary investments. Cash dividends Cash payment of interest . ƒ Financial Activities:     Repayment of long-term loan and redemption of debenture in cash Redemption of preference shares for cash.

A. Cash Flows From Operating Activities Cash Flows From Investing Activities Cash Flows From Financing Activities Net Increase (or decrease) in cash (A + B + C) Cash and Cash equivalents at the beginning of the period Cash and Cash equivalents at the end of the period . B. C.

Cash paid to suppliers and employees = Cash generated from operating activities -Income Tax Paid Net Cash from operating activities .Cash receipts from customers/ Debtors .

Interest/ Dividend Received (Investing activity) =Cash flow from operating activity .Profit on sale of asset (Investing Activity) .Profit After Tax Adjust (reverse) non Cash items + Depreciation/ Amortization + Credit Purchases (Creditors) & other CL .Credit Sales (Debtors) & other CA Adjust (reverse) Non Operating Cash flow +Interest Paid (Financing Activity) + Loss on sale of asset (Investing Activity) .

Sales of Fixed Assets Sales of Investment (Long-term) Interest received Dividend received -Purchase of Investment (Long-term) -Purchase of Fixed Assets Net Cash from investing activities .

Proceeds from issue of share capital Proceeds from long-term borrowings -Repayments of long-term borrowings -Interest Paid -Dividend Paid Net cash from financing activities .

operating & financing activities .ƒ ƒ ƒ ƒ ƒ Meaning of Cash Meaning of Cash Flow statement Uses & limitations of Fund flow statement Difference between cash flow statement & fund flow statement Cash inflow & Outflow in investing.

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