Cash Flow Statement

Cash Flow Statement is a statement that shows the cash flows, i.e.,
inflow and outflow of Cash and Cash Equivalents during the accounting
period from operating, investing and financing activities.

Objectives

1. To determine the sources (receipts) of Cash and Cash

Equivalents under Operating, Investing and Financing
Activities of the enterprise.
2. To determine the applications (payments) of Cash and Cash
Equivalents under Operating, Investing and Financing
Activities of the enterprise.
3. To determine net change in Cash and Cash Equivalents. It is the
difference between sources (receipts) and applications
(payments) under Operating, Investing and Financing Activities
between the dates of two Balance Sheets.

Importance

1. Facilitates in Ascertaining Cash Flow from Operating,

Investing and Financing Activities
Cash Flow Statement shows inflows and outflows of Cash and Cash
Equivalents under Cash Flow from Operating, Investing and
Financing Activities and net change in Cash and Cash Equivalents.

2. Facilitates Planning
Cash Flow Statement gives information about sources and
applications of Cash and Cash Equivalents for a specific period. It
helps in planning investments and assessing the financial requirements
of the enterprise.
3. Helps in Assessing Liquidity and Solvency
Solvency is the ability of the enterprise to meet its liabilities on time.
Cash Flow Statement helps to assess liquidity.

4. Efficient Cash Management

Cash Flow Statement gives information relating to surplus or deficit of
cash. An enterprise, therefore, can decide about the Short-term
Investments of the surplus and can arrange the Short-term Credit in
case of deficit.

5. Comparative Study
A comparison of the actual cash flows with the budgeted cash flows of
the year shows the extent to which Cash and Cash Equivalents were
generated (sourced) and applied (used) as per the plan.

6. Reasons for Cash Position

Cash Flow Statement shows the reasons for lower and higher cash
balances with the enterprise. Sometimes, an enterprise has lower cash
balance in spite of higher profits or has higher cash balance in spite of
lower profits. Reasons for such situations can be analysed with the
help of Cash Flow Statement.

7. Evaluate Management Decisions

Cash Flow Statement, by providing information relating to company's
Investing and Financing Activities, gives the shareholders, potential
investors, lenders and creditors information about cash flows which
helps them evaluate management decisions. It also helps in dividend
decision.

8. Dividend Decision
Dividend payable involves outflow of cash. Cash Flow Statement
helps in deciding how much dividend should be declared (interim
dividend) and/or proposed (final dividend).

9. Facilitated Capital Budgeting Decisions

It facilitates Capital Budgeting decisions by providing information of
Net Cash Flows from Investing Activities.
Limitations

1. Non-cash Transactions are not Shown

Cash Flow Statement shows only inflows and outflows of cash. It does
not show non-cash transactions like the purchase of building by issue
of shares or debentures to the vendors, issue of bonus shares, etc.

2. Historical in Nature
They are the outcome of accounting concepts and conventions
combined with estimates. Therefore, not free from bias.

3. Assessment of Liquidity
Liquidity of the enterprise cannot be determined from Cash Flow
Statement alone because it depends on other factors also like current
assets and current liabilities. Cash and Cash Equivalents is one of the
components of current assets.

4. Accuracy of Cash Flow Statement

It is prepared from the financial statements. If financial statements are
prepared incorrectly, Cash Flow Statement will also be incorrect.

Operating Activities
Principal revenue producing activities of the enterprise and other
activities which are not Investing or Financing Activities.

Investing Activities
Acquisition and disposal of Long-term Assets and other investments not
included in cash equivalents.

Financing Activities
Activities that result in change in the size and composition of the
owner’s capital and borrowings of the enterprise.
 Sources
Note Current Previous
Particulars
No. Year (₹) Year (₹)
I. EQUITY AND LIABILITIES (+), (-)
Shareholder’s Fund
i. Share Capital Financing
ii. Reserves and Surplus Operating
Net Profit after Tax
Non Current Liabilities
iii. Long Term Borrowings Financing

Current Liabilities
iv. Short Term Borrowings Financing
v. Trade Payables
vi. Other Current Liabilities Operating
vii. Short Term Provisions

TOTAL

II. ASSETS (-), (+)

Non Current Assets Investing
i. Property, Plant, Equipment & Intangible Assets
ii. Non Current Investment
iii. Long Term Loans & Advances
Current Assets
iv. Current Investment Cash and Cash Equivalents
v. Inventories
vi. Trade Receivables Operating
vii. Cash & Cash Equivalents
viii. Short Term Loans & Advances Investing
ix. Other Current Assets Operating

TOTAL
 Cash Flow Statement
Detail Amount
Particulars
(₹) (₹)
Net Profit before Interest and Taxes (Working Notes) – –
Add: Depreciation –
Amortisation (Decrease in Intangible Assets) –
Interest Paid –
Loss on Sale of F.A. –
Charity –
Less: Interest Received –
Dividend Received –
Profit on Sale of F.A. –
Rent Received –
Operating Profit before Change in Working Capital – –
Add: in Current Liabilities (TOS) –
in Current Assets (ITO) –
Less: in Current Liabilities (TOS) –
in Current Assets (ITO) –

Cash Generated from Operations – –

Less: Taxes –

I. Net Cash Flow from/used in Operating Activities – –

Cash Flow from Investing Activities

Add: Sale of F.A. –
Sale of Non-Current Investments –
Sale of Long & Short Term Loans & Advances –
Dividend/Rent/Interest Received –
Less: Purchase of F.A. –
Purchase of Non-Current Investments –
Purchase of Long & Short Term Loans & Advances –

II. Net Cash Flow from/used in Investing Activities – –

 Cash Flow Statement
Detail Amount
Particulars
(₹) (₹)
Cash Flow from Financing Activities
Add: Issue of Shares –
Issue of Debentures –
Raising Bank Loan –
Receipt of Security Premium (Increase in Securities Premium Reserve) –
Less: Repayment of Bank Loan –
Redemption of Debentures –
Interest/Dividend Paid –
III. Net Cash Flow from/used in Financing Activities – –

Net Increase/Decrease in Cash and Cash Equivalents(I + II + III) – –

Add: Cash and Cash Equivalents in the beginning of the year –

Cash and Cash Equivalents at the end of the year – –

Working Notes :-
Net Profit for the year (Closing – Opening) –
Add : Transfer to Reserves –
Provision for Tax –
Proposed Dividend –
Dividend Paid –
Extraordinary Items Debited (Loss by Fire/Theft) –
Less: Refund of Tax (–)
Extraordinary Items Credited (–)
Net Profit before Interest and Taxes –

❖ If the date of new issue is not given, then we assume that it has been issued at
the end of the year.

❖ If decrease in Security Premium Reserve, then NO ENTRY.

Cases Related to Fixed Assets
Particulars Current Year Previous Year
Case 1: Fixed Assets 2,00,000 1,00,000
Ans. Purchase of Fixed Assets ₹1,00,000 Investing (-)

Case 2: Particulars Current Year Previous Year

Fixed Assets 2,00,000 1,00,000
Less: Accumulated Depreciation 20,000 10,000
1,80,000 90,000
Ans. Purchase of Fixed Assets ₹1,00,000 Investing (-)
Depreciation ₹10,000 Operating (+)

Case 3: Particulars Current Year Previous Year

Fixed Assets 2,00,000 1,00,000
Less: Accumulated Depreciation 20,000 10,000
1,80,000 90,000
Additional Information:-
a) A plant costing ₹10,000 (accumulated depreciation ₹2000) was sold for ₹5000
Ans. Dr. FIXED ASSETS ACCOUNT Cr.
Particulars ₹ Particulars ₹
To Balance b/d 1,00,000 By Accumulated Depreciation A/c 2000
To Bank A/c - Purchases 1,10,000 By Bank A/c - Sales Investing (+) 5000
Investing (-)
By Profit & Loss A/c - Loss 3000
Operating (+)
By Balance c/d 2,00,000
2,10,000 2,10,000

Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars ₹ Particulars ₹
To Fixed Assets A/c 2000 By Balance b/d 10,000
To Balance c/d 20,000 By Statement of P & L A/c 12,000
Operating (+)
22,000 22,000
❖ All of this in working notes
Case 4: Particulars Current Year Previous Year
Fixed Assets 2,00,000 1,00,000
Additional Information:-
a) Depreciation charge on Fixed Assets during the year ₹ 20,000
Ans. FIXED ASSETS ACCOUNT Cr.
Dr.
Particulars ₹ Particulars ₹
To Balance b/d 1,00,000 By Depreciation A/c Operating (+) 20,000
To Bank A/c - Purchases 1,20,000 By Balance c/d 2,00,000
Investing (-)
2,20,000 2,20,000

Case 5: Particulars Current Year Previous Year

Fixed Assets 2,00,000 1,00,000
Additional Information:-
a) A plant costing ₹20,000 (accumulated depreciation ₹2000) sold for ₹5000
b) Depreciation charged during the year ₹ 12,000
Ans. Dr. FIXED ASSETS ACCOUNT Cr.
Particulars ₹ Particulars ₹
To Balance b/d 1,00,000 By Depreciation A/c Operating (+) 2000
To Bank A/c - Purchases 1,20,000 By Bank A/c - Sales Investing (+) 5000
Investing (-)
By Profit & Loss A/c - Loss 3000
Operating (+)
By Balance c/d 2,00,000
2,20,000 2,20,000

❖ All of this in working notes

Case 6: Particulars Current Year Previous Year
Fixed Assets 10,00,000 5,00,000
Less: Accumulated Depreciation 60,000 30,000
9,40,000 4,70,000
Additional Information:-
a) A plant costing ₹50,000 was sold for ₹35,000
b) Depreciation charged during the year ₹40,000

Ans. Dr. FIXED ASSETS ACCOUNT Cr.

Particulars ₹ Particulars ₹
To Balance b/d 5,00,000 By Depreciation A/c 10,000
To Bank A/c - Purchases 5,50,000 By Bank A/c - Sales Investing (+) 35,000
Investing (-)
By Profit & Loss A/c - Loss 5000
Operating (+)
By Balance c/d 10,00,000
10,50,000 10,50,000

Dr. ACCUMULATED DEPRECIATION ACCOUNT Cr.

Particulars ₹ Particulars ₹
To Fixed Assets A/c 10,000 By Balance b/d 30,000
To Balance c/d 60,000 By Statement of P & L A/c 40,000
Operating (+)
70,000 70,000

● Depreciation charged = Statement of P & L A/c

● Isse To Fixed Assets A/c ka amount mil jaega
● Aur depreciation charged on single plant mil jaega aur baaki solve hoega
normally.

❖ All of this in working notes

Cases Related to Short-Term Provision
Particulars Current Year Previous Year
Case 1: Provision for Tax 30,000 20,000
(Made) (Paid)
Operating
(+) Adjustments
after Operating
Net Profit After Interest & Taxes after
Cash Generated from Operations
Less: Taxes Paid
Case 2: Particulars Current Year Previous Year
Provision for Tax 30,000 20,000
Additional Information:-
a) Taxes paid during the year ₹5000
Ans. PROVISION FOR TAX ACCOUNT Cr.
Dr.
Particulars ₹ Particulars ₹
To Cash A/c Operating (-) 5000 By Balance b/d 20,000
(Paid Tax) By Statement of P & L A/c (Made) 15,000
To Balance c/d 30,000
35,000
Operating (+) 35,000

Case 3: Particulars Current Year Previous Year

Provision for Tax 40,000 30,000
Additional Information:-
a) Taxes made during the year ₹12,000
Ans. PROVISION FOR TAX ACCOUNT Cr.
Dr.
Particulars ₹ Particulars ₹
To Cash A/c Operating (-) 2000 By Balance b/d 30,000
(Paid Tax) By Statement of P & L A/c (Made) 12,000
To Balance c/d 40,000
42,000
Operating (+) 42,000

❖ If proposed dividend for year 2022 is ₹25,000 and for year 2023 is
Ans. ₹35,000.
Made Paid
Operating (+) Financing (-)