Cash Flow Statement

BY B.K.VASHISHTHA

Contents
y Meaning y Classification y Objectives and uses y Limitations y Difference between Cash Flow and Fund Flow Statements

cash inflows and cash outflows.Meaning Cash: Cash means all cash + cash equitable + marketable securities + bank balance . Statement : Statement is a performa prescribed by Charted Accountant Act.1948. Thus. Flow: Flow means flow of cash from business to economy and economy to business i.e. . Cash Flow Statement is a statement o f inflows (sources) and outflows (uses) of cash and cash equivalents in an enterprise during a specified period of time.

A cash flow statement summarizes the causes of changes in cash position of a business enterprise between dates of two balance sheets. A statement a cash flows reveals the movements of cash of a business enterprise for the given accounting period indicating specifically how the cash was generated.Continued«. .. Statement of cash flow is required for short range financial planning.

Hence. . these are the results of those transactions and events that determines the net profit or loss.Classification As per Accounting Standard-3 (revised) the changes resulting in cash inflows and cash outflows arise on account of three types of activities ²  Cash Flow form Operating Activities: Operating activities are the principle revenue producing activities of the enterprise and other activities that are not investing and financing activities.

forward contracts. commissions and other revenues c. Cash payments to and on behalf of employees e. Cash receipts from the sale of goods and the rendering of services b. Cash receipts and payments relating to future contracts. Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities g.Continued«. . Examples are: a. Cash receipts from royalties. Cash payments to suppliers of goods and services d. option contracts and swap contracts when the contracts are held for dealing or trading purposes. Cash receipts and cash payments of an insurance enterprise for premiums and claims. fees. annuities and other policy benefits f.

Examples are:  Cash payments to acquire fixed assets (including intangibles)  Cash receipts from disposal of fixed assets (including intangibles) .Continued«.  Cash Flow from Investing Activities: Investing activities include the acquisition and disposal of long-term assets and other investments not included in cash equivalents. The separate disclosure of cash flows arising from investing activities is important.

forward contracts. or the payments are classified as financing activities .    Cash payments to acquire and cash receipts from disposal of shares. Cash advances and loans made to 3rd parties Cash payments and receipts for future contracts. warrants or debt instruments of other enterprises and interests in joint ventures. option contracts and swap contracts except when the contracts are held for dealing or trading purposes.Continued«.

Continued«. Financing activities are activities that result in changes in the size and composition of the owners capital (including preference share capital in the case of a company) and borrowings of the enterprise.  Cash Flow from Financing Activities: The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims of future cash flows by providers of funds (both capital and loan)to the enterprise. .

notes. . preference shares. Examples are:  Cash proceeds from issuing shares or other similar instruments  Cash proceeds from issuing debentures.Continued«. and  Cash repayments of amounts borrowed such as redemption of dentures. bonds. bonds and other short or long term borrowings. loans.

Format of Cash Flow Statement ABC Limited For the year ended««««. Rs. xxx xxx xxx xxx xxx xxx xxx .. (A) Cash Flows from Operating Activities: Net Profit before tax & extraordinary items Adjustment 1: Depreciation & Amortization Provision for Doubtful Debts Foreign Exchange gain/loss Dividend Interest Gain/ Loss on sale of fixed assets/investments Rs.

Operating Profit before Working Cap.Continued«. Rs. Rs. Changes Adjustment 2 for changes in working capital: Bills Receivables Debtors Inventories Prepaid Expenses Bills Payable Creditors Cash Generated from Operations Income tax paid Cash before Extraordinary Items xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx .

Rs. Rs. Extraordinary Items Net Cash from (used in) Operating Activities xxx xxx (B) Cash Flow from Investing Activities: Purchase of Fixed Assets Proceeds from Sale of fixed assets Purchase of Investments Proceeds from Sale of investments Interests received Dividend received Net Cash from (used in) Investing Activities xxx xxx xxx xxx xxx xxx xxx .Continued«.

xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx . Rs. (C) Cash Flow from Financing Activities: Proceeds from Issue of Shares/ Debentures Proceeds from Long-term debts Repayment of Long-term Debts Redemption of Debentures Redemption of Preference Shares Dividend paid Interest paid Net Cash from (used in) Financing Activities Net increase/decrease in cash and Cash Equivalents (A+B+C) Cash and Cash Equivalents at the beginning of the year Cash and Cash Equivalents at the end of the year Rs.Continued«.

According to AS-3 (Revised). the objective of cash flow statement is to provide information about the cash flows of an enterprise to the users of financial statements with a basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilize those cash flows so that they may know about the historical changes in cash and cash equivalents. . The secondary objective is to disclose information about the operating. investing and financing activities of an enterprise during an accounting period.Objectives & Uses The primary objective of CFS is to provide information regarding the cash receipts and payments of an enterprise for an accounting period.

Continued«. In brief. the cash flow statement serves the following purposes: ‡ Helpful in planning and Co-ordination ‡ Helpful in Control ‡ Useful in Internal Financial Management ‡ Knowledge of changes in Cash position ‡ Helpful in Short-term financial decisions .

Limitations The cash flow statement has the following limitations: y Misleading Comparisons y Influenced by changes in Management Policies y Incomplete Substitutes .

Fund Flow Statement Fund means net working capital (i. Objective: Its objective is to know about the changes occurred in cash position between two balance sheet dates.e. Basis of preparation: Increase in current liability or decrease in current asset (except cash) results in an increase in cash or vice-versa. Its objective is to know about the changes occurred in net working capital between two balance dates. Increase in current liability and decrease in current asset results in a decrease in net working capital or vice-versa. current assets minus current liabilities). 1. . 3.Difference b/w Cash Flow & Fund Flow Cash Flow Statement Meaning of fund: Funds means only cash which is a component of net current assets. 2.

Such balances of cash are shown in statement of changes in working capital. 5. 6. Cash Balances: Opening and closing balances of cash are shown in cash flow statement.Continued«. A separate statement for changes in working capital is prepared in fund flow statement or analysis. Effect of transaction: Effect of a transaction on cash is considered. 7. 4. . Fund flow statement is useful for long-term analysis. Statement of changes in Working Capital: No such statement is prepared separately in cash flow statement. Effect of a transaction on net working capital is considered. Utility: Cash flow statement is useful for short-term analysis.

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