Cash Flow Statement

Harendra Singh
 The Cash Flow Statement
The cash flow statement provides
information about:
• Cash Receipts (cash inflows)
• Uses of Cash (cash outflows)
During a Period of Time

Inflows and outflows are reported for:

• Operating activities
• Investing activities
• Financing activities
Cash Inflows and Outflows
Classification of Business Activities :
Inflow and Outflow of Cash
Classification of Business Activities :
Inflow and Outflow of Cash
Classification of Business Activities :
Inflow and Outflow of Cash
 Objectives of Cash Flow Statement

1. Highlighting cash flow from different activities

2. Short-term Planning
3. Cash Flow information helps to understand
liquidity
4. Efficient cash management
5. Prediction of sickness
6. Comparison with budget
7. Cash position
Cash Flow Statement : Limitations

• Does not show the liquidity position of the firm

• It is not a substitute of income statement

• Does not show the financial position of the firm

in totality
Distinction between Cash flow Statement
and Funds Flow Statement
PREPARATION OF A CASH FLOW STATEMENT
REPORTING OF CASH FLOWS FROM OPERATING
ACTIVITIES
Direct Method
When all transactions are cash transactions

The net profit shown by P&L Account will be taken as amount of cash from operations
When all transactions are not cash transactions
Adjustments for changes in current assets and current
liabilities
1. Effects of Credit Sale:
2. Effect of Credit Purchase:
Calculate cash from operations from the following data:
3. Effect of opening and closing stock:
4. Effect of outstanding Expenses , Income received in advance etc.
Calculate cash from operations
5. Effect of prepaid expenses and outstanding income
Calculate cash from operations
Calculate cash from operations
 2. Indirect Method
In this method the net profit (loss) is used as the base to calculate
net cash provided by or used in operating activities. Non-cash
and non-operating charges in the Statement of Profit & Loss are
added back to the net profit while non-cash and non-operating
credits are deducted to calculate operating profit before working
capital changes. It is a partial conversion of accrual basis profit to
cash basis profit. Then necessary adjustments are made for
increase/decrease in current assets and current liabilities to
obtain net cash from operating activities