Cash Flow

Statement

Meaning of Cash
For
the
purpose
of
preparation
and
presentation of cash flow statement, Cash
includes
(1)Cash in Hand
(2)Cash at Bank
(3)Short Term Investment
Securities

or

Marketable

Meaning of Cash Flow

Statement
Cash Flow Statement is a

summarised
statement showing sources of cash inflows and
application of cash outflow of an enterprise
during a particular period of time

Features of Cash Flow

Statement

Summarised Statement
Based on Financial statements
Data of two financial years
Tools for managerial decisionmaking
Reports net cash flow

Importance of Cash Flow

Statement
1. Assess the ability of an enterprise to generate cash
resources from its different activities
2. Assess the need of an enterprise to utilizes those cash
resources into its different activities.
3. Enables to prepare the reliable cash flow projections for the
future planning
4. Useful for short term planning
5. Identification of stronger or weaker activity.
6. A tool of comparative study

CASH FLOW STATEMENT

FUND FLOW STATEMENT

1. Cash refers to cash in hand, 1. Funds refers to the working

cash at bank and short term
capital (current assets
investments
Current Liabilities)
2. It exhibits inflows and
outflows of cash and cash
equivalents

2. It exhibits inflows and

outflows of funds ( Working
capital)

3. It is prepared on the cash

basis of accounting.

3. It is prepared on accrual
basis of accounting.

4. It is the important tool for

short term analysis

4. It is the important tool for

long term analysis.

5. Different activities of an
enterprise are separately
exhibited

5. Different activities of an
enterprise are not separately
exhibited

6. It starts with opening

balance of cash & cash
equivalents & close with
closing balance of cash &
cash equivalents

6. It shows the amount

changes between the
opening working capital
balances of an accounting
periods

7. It shows reasons for change

in cash

7. It shows reasons for change

in working capital

Limitations of Cash Flow

Statement
1.
2.
3.
4.

Only includes cash

Only ascertain net cash flow , not net profit
Not a substitute of p&l
Prepared at the end, not usefull for rectification.

Accounting
Standard
(AS -3)
Accounting
standards-3

(AS-3)

The Institute of Chartered Accountant of

India issued AS-3 in march 1997.
Cash Flow Statements have replaced
Statement of Changes in Financial Position.

Accounting Standard (AS -3)

AS-3 have become mandatory w.e.f 1.4.2001 for the

following enterprises.
Enterprises whose equity or debt securities are listed or
going to be listed on a recognized stock exchange in
India.
All other commercial, industrial & business reporting
enterprises whose turnover for the accounting period
exceeds 50 crores.

Classification of Cash
Flow Statement
1. Cash Flow From
Operating Activities
2. Cash Flow From
Investment Activities
3. Cash Flow From Financing
Activities

Cash Flow From Operating

Activities
Operating Activities are principal
revenue-producing activities.
Example : In case of a book publishing
company, its operating activities are printing
and publication of books and their sale.
All cash receipts and cash payment for printing
publication and sales of books are to be
considered as cash flow from operating
activities

ILLUSTRATION

Cash sale of Goods

1,50,000
Collection from Debtors
3,50,000
Cash Purchase of Goods
90,000
Payment to Creditors
2,20,000
Payment of Wages
50,000
Payment of Factory Expenses
40,000
Payment of Office & Administration expenses
25,000
Payment of selling and distribution expenses
35,000
Payment of tax on operating Profit

Calculation of Net Cash flow from

Operating Activities

Cash Inflow from Operating Activities

Cash Sales of Goods
Collection from debtors
Less : Cash Out flow from Operating activities
Cash purchase of Goods

Rs.

Rs.

1,50,00
0
3,50,00 5,00,00
0
0

90,000
2,20,00
0
50,000
40,000

Payment to Creditors
Payment of wages
Payment of Factory expenses
Payment of Office and
Administration expenses
25,000
Payment of Selling and Distribution
4,60,00
expenses
35,000
0
Cash Generated from
operations

40,000
Less : Payment of Tax on operating Profit

15,000
Net cash Flow From Operating Activities
25,000

Cash Flow From Investing

Activities
Investing Activities are the acquisition
and disposal of long term assets and
other investments not included in the
cash equivalents
Example : If a book publishing company,
invests its funds for acquisition of fixed assets
or shares of another company.
Any cash inflows or outflows from these
activities of the company are to be treated as
cash flows from investing activities

ILLUSTRATION
Sale Proceeds of Fixed assets
Sale Proceeds of Long term investments
Income received from investments
Purchased of fixed assets
Long term investment made
Payment of Tax on investing income

5,50,0
00
2,50,0
00
1,00,0
00
4,20,0
00
3,00,0
00
20,000

Calculation of Net Cash flow from

INVESTING Activities

Cash Inflow from Investing Activities

Sales proceeds of fixed
assets
Sale proceeds of long
term investments
Income received from
investments
Less : Cash Out flow from Investing
activities
Purchase of Fixed Assets
Long term investment
Cash Generated from
investment activities
Less : Payment of Tax on investment
profit
Net cash Flow From Investment
Activities

Rs.

Rs.

5,50,000
2,50,000
1,00,000 9,00,000

4,20,000
3,00,000 7,20,000

1,80,000

20,000

1,60,000

Cash Flow From Financing

Activities
Financing Activities are those activities
which result in changes in size and
composition of the owners capital & long
term borrowing of that enterprise
Example : If a book publishing company,
issues its equity shares, redeem its debentures
etc.

ILLUSTRATION
Proceeds received from the issue of equity
shares
Proceeds received from the issue of
preference shares
Proceeds from the long term loans
Redemption of Preference shares
Redemption of Debentures
Payment of Dividend

5,50,0
00
2,50,0
00
1,00,0
00
4,20,0
00
3,00,0
00
20,000

Calculation of Net Cash flow from

FINANCING Activities

Rs.

Rs.

Cash Inflow from Financing Activities

Proceeds received from the issue of equity

shares
5,50,000
Proceeds received from the issue of preference
shares
2,50,000
Proceeds received from the long term loans
1,00,000 8,50,000
Less : Cash Out flow from Financing activities

Redemption of Preference shares

4,20,000
Redemption of debenture
3,00,000

Payment of dividend
20,000
7,40,00

Net cash Flow From Investment

Activities

1,10,000

A. Cash Flow From Operating Activities

Cash Receipts
Proforma
of Cash from
Flow Customers
Statement under Direct Method
Less :
Cash paid to Suppliers & Employees
Cash Generated from Operations
Less :
Income Tax Paid
Cash Flows from operations before extraordinary
Items
Add :
Proceeds from any Disaster Settlement
Net Cash Flow From Operating Activities
B. Cash Flow from Investing Activities
Proceeds from Sale of Fixed Assets including
investments
Less :
Purchase of Fixed Assets including investments
Add :
Interest Received
Dividend Received
Net Cash Flow From Investing Activities
B. Cash Flow from Financing Activities
Proceeds from issuance of Share Capital
Proceeds from Long-term Borrowings
Less :
Repayment of Long term Borrowings
Less :
Interest paid
Dividend Paid
Net Cash Flow From Financing Activities
Net increase in Cash and Cash Equivalents
Add :
Cash and Cash Equivalents at the beginning of the
period
Cash and Cash Equivalents at the end of the period

Rs.

Rs.

Rs.

Proforma of Cash Flow Statement under Indirect Method

A. Cash Flow From Operating Activities
Net Profit for the period before taxation and extraordinary items
Add : Adjustment for non-current & non operating items
charged to P/L a/c
Depreciation
Interest Paid
Foreign Exchange Loss
Loss on sale of Fixed Assets and Investments
Less : Adjustment for non-current& non operating items
credited to P/L a/c
Interest Earned
Dividend Earned
Profit on sale of Fixed Assets and Investments
Operating Profit before working capital
changes
Add :
Less :

Increase in operating current liabilities

Decrease in operating current assets
Increase in Operating current Assets
Decrease in operating current liabilities
Cash generated from operations

Rs.

Rs.

Rs.