CASH FLOW STATEMENT
1
According to AS 3 every company should along
with the Balance sheet and Profit and Loss
Account provide information on Cash flows of the
organization during the period
•CFS profits information about the changes in cash and
cash equivalent of an enterprise.
•It is based on cash concept of profit.
•It identifies cash generated from operations,
•the operating cash surplus
• which can be applied for investments in fixed assets.
•What an be ploughed back is directly identifiable from cash
flow statement.
•CFS is prepared to explain the cash movements between
two points of time.
Meaning of ‘Cash Flows’
Cash flows are inflows and
outflows of cash and cash
equivalents.
When does the flow of
Cash arise?
It arises when the net effect
of a transaction is either to
increase or to decrease the
amount of cash or cash
3
MEANING OF CASH FLOW
STATEMENT
The Cash Flow Statement means the
statement of changes in Cash and Cash
equivalents.
Net Cash flows
It shows the following for the period covered by it:—
from Operating
Activities
Net Cash flows
from Financing Net Change in
Activities Cash and Cash
Equivalents
Net Cash flows
from Investing
Activities 4
Meaning of 'Cash'
Cash comprises Cash on hand and
Demand Deposits with Banks.
Meaning of ‘Cash Equivalents’
Cash Equivalents are short term, highly
liquid investments that are readily
convertible into known amounts of cash
and which are subject to an insignificant
risk of changes in value.
5
Computation of Cash
and Cash Equivalents
Cash and Cash Equivalents at
the Beginning of Period
Rs.
Cash in hand 5,000
Cash at Dena Bank 10,000
Marketable Securities3,000
Less: Bank Overdraft ( 10,000)
Less: Cash Credit (9,000) 6
Meaning of Operating
Activities
(a)These are the principal
revenue-producing activities of
the enterprise and other
activities that are not investing
or financing activities.
(b)Cash flows from operating
activities are primarily derived
from the principal revenue-
producing activities of the 7
Cash Flows from Operating
Activities
Cash Inflows Cash Outflows
• Cash Sales • Cash Purchases
• Cash Receipts
from Debtors • Cash Paid to
Suppliers
• Trading • Wages Paid
Commission • Mfg. Oh.Paid
Received • Admin.& Selling
• B/R collected Expenses
8
Meaning of Investing
Activities
Investing activities are the
acquisition and disposal
of long-term Assets and
other Investments not
included in Cash equivalents.
9
Cash Flows from Investing
Activities
Cash Inflows Cash out flows
Sale of……….. Purchase
-Machinery of…….
-Land & Building
-Furniture & Fixtures
-Machinery
- Investments -Land & Building
-Non Operating -Furniture &
Incomes Fixtures
-Investments
10
Meaning of Financing
Activities
These are the activities
that result in changes in the
size and composition of the
owners’ capital and
borrowings of the
enterprise.
Cash flow from financing
activities is ascertained by
analyzing the changes in
Equity Share Capital, Pref.
11
Cash Flows from Financing Activities
Cash Inflows due Cash Outflows
To
Issue of -Buy back of Equity
-Equity Share Capital Shares
- Pref. Share Capital
- Debentures -Redemption of
Preference Shares
-Raising of other
borrowings. -Repayment of Long-term
borrowings
-Dividend paid
- Interest paid
12
How to Compute Cash Flow
from
Operating Activities?
Direct O Indirect
Method R Method
13
Cash Flow from Operating Activities (Direct Method )
Particulars
A. Operating Receipts in Cash:
Cash Sales
Cash receipts from customers
Trading Commission received
B. Operating Payments in Cash:
Cash Purchases
Cash paid to suppliers
Trading Commission paid
Manufacturing Exp. paid
Admin & Selling Exp. paid
C.Cash generated from Operations before taxes [A – 14
Cash Flow from Operating
Activities
(Indirect Method)
Particulars
A. Net Profit as per Profit & Loss A/c
Add: Proposed dividend for the current year
Add: Interim dividend paid during the year
Add: Transfer to reserve
Add: Provision for Tax made during Current Year
Less: Refund of Tax
Less: Extraordinary items (i.e., Insurance proceeds15
.B. Net profit before taxation, and extraordinary item
C. Add: Items to be added:
Depreciation
Interest on Long term borrowings
Discount on Issue of Debentures w/o
Patents written off
Loss on sale of Machinery
Premium on redemption of Pref. shares
D. Less: Non operating g incomes to be
deducted:
E. Operating Profit before working capital changes
16
F. Add: Decrease in C. Assets & Increase in C.
H. Cash generated from operations
I. Less: Income taxes paid (Net of
Refund)
J. Cash flow before extraordinary item [H
– I]
K. Extraordinary items
L.Net Cash from Operating Activities
17
Practical Guidelines
for the computation
of Cash from
Operating
Activities from the
Items of
Balance Sheet
without additional
information 18
. Proposed Dividend
for the Current Year
Add back to current
year’s Net Profits after
appropriations
19
Provision for Tax
.
made during the
Current Year
Add back to current
year’s Net Profits after
appropriations
20
. Increase in
Reserve
Add back to current
year’s Net Profits after
appropriations
21
. Decrease in
Reserve
Subtract from current
year’s Net Profits after
appropriations
22
Decrease in
.
Intangible Assets like
Goodwill, Patent,
Trademark, Copyright
Add back to current
year’s Net Profits
before tax
23
Increase in Provision
.
for Depreciation
Account
Add back to current
year’s Net Profits
before tax
24
Decrease in items of
Miscellaneous Expenditure
like Preliminary Expenses,
Underwriting Commission,
Discount on Issue of
Debentures/Shares.
Add back to current
year’s Net Profits
before tax
25
.Decrease in Current
Assets other than Cash
& Bank Balance and
Marketable Securities
Add back to current
year’s Operating Profits
before Working Capital
changes.
26
.Decrease in Current
Assets other than Cash
& Bank Balance and
Marketable Securities
Add back to current
year’s Operating Profits
before Working Capital
changes.
27
.Increase in Current
Liabilities other than
Bank Overdraft & Cash
Credit
Add back to current
year’s Operating Profits
before Working Capital
changes.
28
Increase in Current Assets
other than Cash & Bank
Balance and Marketable
Securities
Deduct from current
year's Operating Profits
before Working Capital
changes.
29
Decrease in Current
Liabilities other than Bank
Overdraft & Cash Credit
Deduct from current
year's Operating Profits
before Working Capital
changes.
30
Tax paid during the
year (if not given
separately then Provision
for Tax for the previous
year)
Deduct from cash
generated from
operations before tax.
31
Practical Guidelines for
the computation of Cash
from Investing
Activities from the
Items of Balance Sheet
without additional
information
32
Increase in Intangible Assets
Opening
Closing
Trade Mark 1 LAC
3 LAC
Cash Used in Investing
Activity
Cash Flow Statement
Cash used in Investing
Activity
Purchase of Trade mark
2 Lacs
33
Increase in Gross/Net Depreciable
Fixed Assets
Opening
Closing
Machinery 1 LAC
3 LAC
Cash Used in Investing
Activity
Cash Flow Statement
Cash used in Investing
Activity
Purchase of Machinery 2
Lacs
34
Increase in Non-Depreciable Fixed
Assets
Opening Closing
Investments 1 LAC 3
LAC
Cash Used in Investing
Activity
Cash Flow Statement
Cash used in Investing
Activity
Purchase of Investments
2 Lacs
35
Increase in items of Misc.
Expenditure
Opening Closing
Pre. Expenses 1 LAC
3 LAC
Cash Used in Investing
Activity
Cash Flow Statement
Cash used in Investing
Activity
Payment of Pre. Exp. 2
Lacs
36
Decrease in Non-Depreciable
Fixed Assets
Opening Closing
Investments 3 LAC 1
LAC
Cash inflow from
Investing Activity
Cash Flow Statement
Cash from Investing
Activity
Sale of Investments 2
Lacs
37
Decrease in Gross Depreciable
Fixed Assets
Opening Closing
Machinery 3 LAC
1LAC
Cash inflow from
Investing Activity
Cash Flow Statement
Cash from Investing
Activity
Sale of Machinery 2 Lacs
38
Interest on the Op.Bal. of
Investments
Opening
Closing
10% Investments 3 LAC
1 LAC
Cash inflow from
Investing Activity
Cash Flow Statement
Cash from Investing
Activity
Interest on Investments
0.3 Lacs
39
Increase in Accrued Interest on
Investments
Opening
Closing
10% Investments 3 LAC
1 LAC
Accrued Interest
It is subtracted 0.10
from the
0.11
amount of interest on
Opening balance of
Investments
Cash Flow Statement
Cash from Investing
Activity
Interest on Investments
0.29 Lacs
40
Practical Guidelines for
the computation of Cash
from Financing Activities
from the Items of
Balance Sheet without
additional information
41
Increase in Equity Share
Capital/Pref. Share
Capital/Debentures
Opening
Closing
Equity Share Capital 1 LAC
Cash3 LAC
Inflow from Financing
Activity
Cash Flow Statement
Cash from Financing
Activity
Equity Share Capital 2
Lacs
42
Decrease in Equity Share
Capital/Pref. Share
Capital/Debentures
Opening
Closing
Equity Share Capital 3 LAC
1 LAC
Cash used in Financing
Activity
Cash Flow Statement
Cash used in Financing
Activity
Equity Share Capital 2
Lacs
(Buy-Back ) 43
Premium
Opening
Closing
Eq. Share capital 1 LAC
3 LAC
It Premium
Securities is added to the
0.25
increase in amount of
0.75
Share Capital
Cash Flow Statement
Cash from Financing
Activity
Equity Share Capital 2.5
Lacs
( Incl. Premium) 44
Increase in Discount on
Issue of Debentures
Opening Closing
Debentures 1 LAC
3 LAC
Discount 0.25
It is subtracted from the
0.75 increase in amount of
Cash Debentures
Flow Statement
Cash from Financing
Activity
Debentures 1.5
Lacs ( Net Of
Discount ) 45
Interest on Opening
Balance of Debentures
Opening
Closing
10% Debentures 1 LAC
3 LAC
Cash used in Financing
Activity
Cash Flow Statement
Cash used in Financing
Activity
Interest on Debentures
0.10 Lacs
46
