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Cash Flow Statement

The cash flow statement assesses the ability of a business to generate cash flows and how cash is utilized. It provides an overview of the sources and uses of cash during an accounting period by classifying cash flows into operating, investing and financing activities. The cash flow statement explains the changes in a company's cash balance by reconciling cash generated and utilized during the period. It is an important financial statement that provides information beyond what is shown in the income statement and balance sheet.

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129 views16 pages

Cash Flow Statement

The cash flow statement assesses the ability of a business to generate cash flows and how cash is utilized. It provides an overview of the sources and uses of cash during an accounting period by classifying cash flows into operating, investing and financing activities. The cash flow statement explains the changes in a company's cash balance by reconciling cash generated and utilized during the period. It is an important financial statement that provides information beyond what is shown in the income statement and balance sheet.

Uploaded by

rangoli maheshwari
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CASH FLOW

STATEMENT
To assess the
P&L based upon
ability of the
accrual concept
business to
WHY generate cash
and its
doesn’t reveal
cash from
CASH utilization
operations

FLOW To have an
STATEM Other sources
overview of
sources and uses
ENT? and uses of cash
impact balance
of cash in the
accounting period
sheet a Cash Flow
Statement is
prepared
WHAT IS CASH?

Cash comprises cash on hand and deposits


with banks

Short term, highly liquid


investments
Cash Equivalents Readily convertible into cash
Insignificant risk of changes in
value
CASH FLOW STATEMENT

To be prepared and presented for each period for


which financial statements are prepared
Cash flow should be classified into
 Operating Activities
 Investing Activities
 Financing Activities

The sum of cash flow from these activities should


explain change in cash balance over the accounting
period
CASH FLOW STATEMENT
OPERATING ACTIVITIES

Principal revenue-generating activities


Generally result from the transactions and other
events that enter into the determination of net profit
or loss
Examples
 Receipts from sale of goods or rendering of services
 Payments to suppliers for goods and services
 Payment to employees
 Payment of income tax
INVESTING ACTIVITIES
Acquisition and disposal of long-term assets and other
investments
For acquiring resources intended to generate future income
and cash flow
Examples
 Payment to acquire fixed assets
 Receipts from disposal of fixed assets
 Payments for acquiring investments
 Cash advances and loans made
 Recovery of cash advances and loans
 Receipt of dividend/ interest on investments
FINANCING ACTIVITIES

That result in changes in the size and composition of


the owners’ capital and borrowings of the enterprises
Useful to predict claim on future cash flow by the
providers of funds
Examples
 Cash proceeds from issue of shares
 Cash proceeds from issuing debentures and other long term
borrowings
 Cash repayments of amount borrowed
 Payment of interest / dividend
EXTRA-ORDINARY ITEMS
Cash flow from extra-ordinary items should be separately disclosed
classified into operating, investing and financing activities
TAXES ON INCOME
Tax paid to be classified as cash flow from operating activities unless
they can be specifically identified with financing and investing
activities
NON CASH
TRANSACTIONS
Investing and Financing Transactions that do not require use of cash
Exclude from cash flow statement
Disclose separately elsewhere in the financial statements
CASH FROM OPERATIONS

Direct Method
 Major classes of receipts and payments for operating activities are
considered

Indirect Method
 Adjust Net profit or Loss
 non-cash items
 changes in current assets and liabilities
 Items that can be classified as financing or investing cash flows
CASH FLOW STATEMENT
Cash Flow from Operating Investing Activities Financing Activities
Activities
Profit Before Tax Purchase of Fixed Issue of Shares
Add: Non Cash Expenses Assets Issue of Debentures
(Depreciation) Acquisition of Loans Taken
Add: Not Operating Expenses Investments Redemption of
(Interest Expense/ Loss on Loans and Advances Debentures
Sale of Assets) Given Repayment of Loans
Less: Non Operating Income Sale of Fixed Assets Interest paid
(Interest Earned/ Dividend/ Sale of Investments
Gain on Sale of Assets) Dividend paid
Loans and Advances Dividend
Add: Decrease in Current Recovered
Assets Distribution Tax
Interest Received paid
Add: Increase in Current
Dividend Received
Liabilities
Sale of Assets
Less: Increase in Current
Assets
Less: Decrease in Current
Liabilities
Less : Income Tax Paid
DISCLOSURE
Components of Cash and cash equivalents
Reconciliation of amounts in the Cash Flow Statement with the items
reported in the Balance Sheet
Amount of significant cash and cash equivalents held by the
enterprise that are not available for use by it
EXAMPLE – INCOME
STATEMENT
CASH FLOW STATEMENT

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