This statement helps to show the flow of incoming and out going cash i.e. It helps to determine the ability of an enterprise to generate cash and to utilise the cash

.A cash flow statement may be defined as a summary of receipts and payments. payments. reconciling the opening cash (cash and cash equivalents) balance with the closing balance of a given period with information about the sources (inflow) and application (outflow) from items appearing in the balance sheet and the P/L a/c of the enterprise. enterprise.

Historical changes that have taken place in the cash and bank accounts of the business.3 ASCASH FLOWS = inflows and outflows of cash and cash equivalent i.As per AS. CASH EQUIVALENT = short term.e. CASH = cash in hand and demand deposits with bank. . highly liquid investments that are readily convertible into known amount of cash and which are subject to an insignificant risk of changes in value.

Cash at the beginning = xxxx (+) Cash receipts = xxxx (.) Cash payments = xxxx -----------------------------------------------------------Cash at the end of the period = xxxxx .

Format of cash flow statement = Cash flows from Operating activities =xxxx Cash flows from Investing activities =xxxx Cash flows from Financing activities =xxxx ---------------------------------------------------------Net cash movement for the year = xxxxx (+) Cash at the beginning of the yr = xxxx ---------------------------------------------------------Cash at the end of the year = xxxxxx ---------------------------------------------------------Where. Cash flows = inflows/ outflows .

.Operating Activities:Activities:It is a Principal revenue producing activities of the enterprises other than investing and financing activities.

etc. building.) not held for resale and other investments. . land.Investing Activities:Activities:It includes transactions and events that involve the purchase and sale of longterm productive assets (machinery.

Financing Activities:Activities:It involves activities that results in changes in the size and composition of the owners· capital and borrowings of the enterprise ( including preference share capital). .

fees. Payment to and on behalf of employees. forwards. Refund of income tax. Receipts for premiums and claims. Interest received . options. . swaps contracts when held for dealing or trading purpose. Receipts relating to futures. Payments against premium and claims.Operating Activities:Activities:INFLOWS      OUTFLOWS       Cash sales. swaps contracts when held for dealing or trading purpose. Income tax (unless specified under investing or financing activities). annuities & other policy. Interest paid ( working capital loan or to finance operating activities). options.  Suppliers for goods/ services. annuities & other policy. forwards. Payments relating to futures. Royalties. commission and other revenue.

forwards. options. . warrants or debt instruments of other enterprises and interest in joint ventures (other than those involved in trading activities). Payments relating to futures. warrants or debt instruments of other enterprises and interest in joint ventures (other than those held for trading purpose).   Purchase of Fixed Assets (including intangibles). Purchase of investments. shares. Payment for capitalized R&D cost. Loans and advances from third parties (other than of a financial enterprise). Loans and advances from third parties (other than transactions made by a financial enterprise). shares. forwards. Sale of investments. swaps contracts except held for trading or classified as financing activities. options. Receipts relating to futures.Investing Activities:Activities:INFLOWS   OUTFLOWS       Sale of Fixed Assets (including intangibles). Interest / dividend received . swaps contracts except held for trading or classified as financing activities.

bonds and other short term borrowing in cash. Interest paid. loan. Redemption of preference shares.notes. .Financing Activities:Activities:INFLOWS   OUTFLOWS       Issue of shares in cash. Proceeds from long ² term borrowings. Repayment of finance / lease liability. Payment of dividend. Issue of debentures. Payment of loans.

INDIRECT METHOD:In this method.Method of ascertaining cash flow from Operating activities ::DIRECT METHOD:In this method gross receipts and payments of cash are disclosed. . the P/L a/c is adjusted for the effects of transactions of noncash nature.

DIRECT METHOD:METHOD:CASH FLOW FROM OPERATING ACTIVITIES:Cash receipts from sales xxx commission & fees xxx interest received xxx B. Cash payments for purchases xxx payment to and for employees xxx operating expenses xxx interest payments xxx direct taxes paid xxx ---------------------------------------------------------------------------------------Net cash flow from operating activities xxxx A. .

etc. loss on sale of fixed assets. preliminary expenses w/off. proposed dividend. loss on revaluation.INDIRECT METHOD:METHOD:CASH FLOW FROM OPERATING ACTIVITIES:Net profit for the year xxx (+) Non ² cash expenses:depreciation. xxx (-) Non ² cash Incomes:profit on sale of fixed assets xxx -------------------------------------------------------------------------------------------------Operating profit before working capital changes:xxxx (+) Decrease in current assets xxx (+) Increase in current liabilities xxx (-) Increase in current assets xxx (-) Decrease in current liabilities xxx -------------------------------------------------------------------------------------------------Cash generated from operating activities xxxx (-) interest/ taxes paid xxx --------------------------------------------------------------------------------------------------Net cash flow from operating activities xxxxx . shares discount w/off. provision for taxations. goodwill w/off.

On the basis of nature of enterprise:financial enterprises:interest paid² operating activities. . b. Interest receivedinterest received from investment ² investment activities. dividend paid ² financing activities. interest / dividend ² operating activities. interest received from short term investments ² operating activities. interest / dividend received ² investment activities. other enterprises:interest / dividend paid² financing activities. interest received on trade advances/ operating receivables ² operating activities.EXCLUSIVE TREATMENTS:TREATMENTS:INTEREST AND DIVIDEND:a.

If transactions is related to investing/ financing then appropriate allocation should be done. Interest paid:on loans / debts ² financing activities. Cash flows for tax refund ² operating activities. on working capital loan or any other loan taken to financial operating activities ² operating activities. .c. TREATMENT OF TAX Cash flows by tax payment ² operating activities.

* purchase of an enterprise by means of issue of shares/ debentures. investing and financing activities as appropriate and disclosed accordingly.NON.CASH TRANSACTIONS Non ² cash transactions which is not having any influence on investing and financing activities should be excluded from cash flow statement and to be disclosed in financial statements. . etc. * conversion of debt to equity. Transactions like* purchase of assets by issue of debentures. EXTRAORDINARY ITEMS Cash flows associated with extraordinary items should be classified as arising from operating.

CASH FLOW PATTERN AND THEIR ANALYSIS +++ = co. . using cash from operations and from sale of fixed assets to pay down debt or to pay owners. possibly looking for acquisition. ++- = co. from sale of assets and from financing to build up pile of cash ² very liquid co. using cash generated from operations.

.+-+ = co. is using cash from operations and from borrowing (or from owners investments) to expand. +-- = co. is using flows generated from operations to buy fixed assets and to pay down debts or to pay owners.

-+- . or by stockholders contributions.-++ = co·s operating cash flow problems are covered by sale of fixed assets. by borrowing. is financing operating cash flow shortages and payments to creditors and/or stockholders (owners) via sale of fixed assets. = co.

is growing rapidly. ---------------------------------------------------------------- Where.--+ = co. but has shortfall in cash flows from operations and purchase of fixed assets financed by long term debt or new investments. + means inflows and ² means outflows of cash and cash equivalents . is using cash reserves to finance operation shortfall and pay long term creditors and/ or investors. --- = co.

Tom Lee (1984) is of the opinion that cash flow statement or cash flow report is capable of providing the owners of the business with an in-depth disclosure of the profits and operating cash flow. xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx .

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