CASH FLOW STATEMENT

Dr. Varsha Rayanade

Meaning of Cash Flow Statement
• The term cash flow refers to the net amount of cash and cash
equivalents being transferred in and out of a company. 
• A Cash Flow Statement is a Statement which summarizes the
resources of cash available to finance the activities of a
business enterprise and the uses for which such resources have
been used during a particular period of time.
• Any transaction that increases the amount of cash, is a source
of Cash and any transaction that decreases the amount of cash,
is an application of Cash.
• Positive cash flow indicates that the Company’s liquid
Assets  are increasing, enabling it to cover obligations, reinvest
in its business, return money to shareholders, pay expenses,
and provide a buffer against future financial challenges.
Dr. Varsha Rayanade
Meaning of Cash Flow Statement
• A Cash Flow Statement is similar to Fund Flow Statement, but
while preparing funds flow statement all the current assets and
current liabilities are taken into consideration. However, in a
Cash Flow Statement only Sources and Applications of cash are
taken into consideration, even liquid assets like Debtors and
Bills Receivables are ignored.
• A Cash Flow Statement is a Statement which summarizes the
resources of cash available to finance the activities of a
business enterprise and the uses for which such resources have
been used during a particular period of time.
• Any transaction that increases the amount of cash, is a source
of Cash and any transaction that decreases the amount of cash,
is an application of Cash.
Dr. Varsha Rayanade
Components of Cash Flow
• Cash Flow from Operating Activities:
o The net amount of cash coming in or leaving from the day to day
business operations of an entity is called  Cash Flow From Operations.
o Basically it is the operating income plus non-cash items such as
depreciation which are added back to compute cash flow.
o Cash flow from operations is an important measurement by which an
analyst understands the viability of an entity’s current business plan and
operations.
o In the long run, cash flow from operations must be cash inflows in order
for an entity to be solvent and provide for the normal outflows from
investing and finance activities.

Dr. Varsha Rayanade

Components of Cash Flow
• Cash Flow from Investing Activities:
o Cash flow from investing activities would include the outflow of cash for
long term assets such as land, buildings, equipment, etc., and the inflows
from the sale of assets, businesses, securities, etc.
o Investing (in the context of the cash flow statement) means spending of
cash on non-current assets. For example, spending cash on computer
equipment, on vehicles, or even on a building, etc. Thus investing
activities mainly involves cash outflows for a business.
o Most cash flow investing activities are cash out flows because most
entities make long term investments for operations and future growth.
o Cash inflows in this section relates to the sale of a non-current asset in
which investment was made earlier.

Dr. Varsha Rayanade

Components of Cash Flow
• Cash Flow from Finance Activities:
o Cash flow from finance activities is the cash out flow to the entity’s
investors (i.e. interest to bondholders) and shareholders (i.e. dividends
and stock buybacks)
o While, Cash flow from finance activities is the cash in flows from sales of
bonds or issuance of stock equity.
o Most cash flow finance activities are cash outflows since most entities
only issue bonds and stocks occasionally.
o Cash flow from financing represents the financial strength of an
organization and reveals how effectively its capital structure is managed

Dr. Varsha Rayanade

Difference Between Cash Flow and Fund Flow
Sr CASH FLOW STATEMENT
1 Cash Flow Statement is the
summarized statement of cash
receipts and cash payments of the
firm between two financial periods.
FUND FLOW STATEMENT
Fund Flow Statement is a financial tool,
designed to analyze the changes in
financial position of the firm,
comparing two financial years.

2 It is based on “Cash concept of Fund” It is based on “Working Capital Concept

of Fund”
3 It discloses Inflows and Outflows of It discloses Sources and applications of
Cash funds
4 It is a managerial tool of financial It is a managerial tool of financial
analysis to help take short term analysis to help take long term
decisions decisions
5 It adopts Cash Basis of Accounting It adopts Accrual Basis of Accounting

Dr. Varsha Rayanade

Difference Between Cash Flow and Fund Flow
Sr CASH FLOW STATEMENT FUND FLOW STATEMENT
6 Objective of Cash Flow Statement is to Objective of Fund Flow Statement is to
explain the cash movement amidst two explain the causes of changes in the
points of time. balance sheet items, i.e. asset and
liabilities between two financial year

7 Inflow of Cash, results in inflow of Inflow of Funds however, does not

Funds necessarily mean inflow of Cash
8 Sound Cash position is always indicative Sound Funds position however, does
of sound funds position not mean sound cash position
9 It starts with the opening balance of Here Sources and Application of Funds
cash and ends with the closing balance are matched and reconciled.
of cash
10 It is prepared from basic data It is an extension of Balance Sheet.

Dr. Varsha Rayanade