CASH FLOW SATATEMENT

SESSION NO. 17,18.

OBJECTIVES
Meaning of Cash flows AS-3(Revised)Cash Flow Statements. Cash flows from operating, investing and financing activities. Comparison between funds flow and cash flow statements. Preparing Cash Flow Statement as per Accounting Standard-3. Direct and Indirect methods of preparing Cash Flow Statement.

 Meaning of cash flows. Inflow and outflow of Cash and Cash equivalents. 1. Cash in hand and demand deposits with banks. 2. Cash equivalents - Short term highly liquid investments Revised Account Standard-3

Classification of business activities.

Cash flows from operating activities. Cash flows from investing activities. Cash flows from financing activities.

Format of Cash Flow Statement

Cash flows from operating activities I Method. Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations income tax paid xxx (xxx) xxx (xxx) -----xxx xxx -------

Cash flows before extraordinary items Extraordinary items Net cash from (used in) operation

xxx

II Method Net profit before tax and extraordinary items Adjustments for non-cash and nonoperating items (depreciation, foreign exchange loss, loss on sale of fixed assets, interest income, dividend income, interest expense etc.) Operating profit before working capital changes Adjustments for changes in current assets and current liabilities

xxx

xxx -----xxx xxx -------

Cash generated from (used in) operations before tax Income tax paid Cash flows before extraordinary items Extraordinary items (refund of tax)

xxx xxx -------xxx

xxx --------

Net cash from (used in) operating activities.

Cash flows from Investing activities Purchase/sale of fixed assets, purchase/sale of investments, interest received, dividend received Net cash from (used in) investing activities Cash from Financing activities Proceeds from issue of shares, long term borrowings Repayment of long term borrowings, interest paid, dividend paid etc Net cash from (used in) financing activities

xxx ------xxx

xxx (xxx) -------

xxx

Net increase or decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

xxx xxx ------xxx -------

Fund flow statement

Comparison between Fund Flow Statement and Cash Flow Statements

Cash flow statement Based on narrower concept of funds (cash) Based on cash basis of accounting No such schedule is prepared It is prepared by classifying all cash

Based on wider concept of fund (working capital) Based on accrual basis of accounting. Schedule of changes in working capital is prepared It reveals the sources and applications of

Contd
funds .Net difference between sources and uses of funds represents net increase or decrease in working capital It is useful in planning intermediate and long term financing inflows and outflows. Net difference represents net increase or decrease in cash and cash equivalents It is useful for short term analysis and cash planning of the business.