CASH FLOW STATEMENT

Prepared by
Yamuna M C
Assistant Professor
Department of commerce and management
 MEANING OF CASH FLOW
STATEMENT
CASH FLOW STATEMENT is a statement that shows the flows,
i.e., inflow and out flow of cash and cash equivalents during
the period under report.
Inflow – Transaction which increases cash or cash equivalents

Outflow – Transaction which decreases cash or cash

equivalents
 CASH FLOWS
CASH INFLOWS CASH OUTFLOWS

 Cash sales  Cash purchases

 Cash received against trade  Payments to trade creditors
receivables  Operating expenses paid
 Cash received from commission  Cash purchase of
and royalty
investment(other than
 Insurance claims received marketable securities)
 Sale of investment(other than  Purchase of fixed assets
marketable securities)  Loans and advances given and
 Sale of fixed assets repaid
 Sale of securities  Payment for buy-back of equity
 shares
Loans and advances received
 Redemption of preference
 Proceeds from the issue of
shares and debentures
shares and debentures
 OBJECTIVES OF CASH FLOW STATEMENT

 To determine the sources (receipts) of cash and cash equivalents

from operating, investing and financial activities.
 To determine the application (payments) of cash and cash
equivalents under operating, investing and financial activities.
 To determine changes ie net change in cash and cash
equivalents.
IMPORTANCE AND USES OF CASH FLOW STATEMENT
 SHORT TERM PLANNING
 HELPS IN ASSESSING LIQUIDITY AND SOLVENCY
 COMPARATIVE STUDY
 REASONS FOR CASH POSITION
 EFFICIENT MANAGEMENT
 EVALUATE MANAGEMENT DECISION
 DIVIDEND DECISION
 LIMITATIONS OF CASH FLOW STATEMENT
 NON CASH TRANSACTIONS ARE NOT SHOWN
 NOT A SUBSTITUTE FOR AN INCOME STATEMENT
 NOT A SUBSTITUTE FOR BALANCE SHEET
 HISTORICAL IN NATURE
 ASSESSMENT OF LIQUIDITY
 ACCURACY OF CASH FLOW STATEMENT
 DIFFEFENCE BETWEEN FFS AND CFS
CFS FFS
 PREPARED ON CASH BASIS  PREPARED ON WORKING CAPITAL
 SHOW CAUSES OF CASH CHANGES BASIS
 SHOW CAUSES OF WORKING CAPITAL

CHANGES
USEFUL FOR SHORT TERM
FINANCIAL ANALYSIS  USEFUL FOR LONG TERM FIANCIAL
 CASH RECEIPTS AND CASH ANALYSIS
DISBURSEMENT ARE RECORDED
 OPENING AND CLOSING CASH  THEIR NET EFFECT RECORDED
BALANCE ARE SHOWN
 SHOWN IN SHEDULE OF CHANGES IN
 PREPARED ON CASH CONCEPT
WORKING CAPITAL
BASIS
 PREPARED ON ACCRUAL BASIS
 MORE IMPORTANT TO FINANCIAL
ANALYSIS  LESS IMPORTANT IN FINACIA ANALYSIS
 ONLY ONE STATEMENT IS  STATEMENT OF CHANGES IN WORKING
PREPARED
CAPITAL IS PREPARED ALONG WITH FFS
 PREPARATION OF CASH FLOW STATEMENT

Cash flow statement is prepared according to the

Accounting Standard-3 (revised). It is prepared either by
DIRECT OR INDIRECT METHOD (Preferably indirect
method).
Showing cash flow under three heads:-
1. Cash flow from operating activities.
2. Cash flow from investing activities.
3. Cash flow from financing activities.
 OPERATING ACTIVITIES
Operating activities are the principal revenue producing activities of the
enterprise and other activities that are not investing or financing activities.
CASH FLOW FROM OPERATING ACTIVITIES ARE:-
For financial companies
 Payment for purchase of securities
 Payment of interest on loans
 Receipts from sale of securities
 Dividend received on securities
 Interest received on loans granted
 Payment of salaries, bonus to employees
 Payment of and refund of income tax unless these are identified with investing
or financing activities.

contd….
 OPERATING ACTIVITIES
……………For non-financial companies
 Receipts from sale of goods and services
 Receipts from royalties, fees and commission
 Receipts from trade receivables
 Payment for purchase of goods and services
 Payment to trade payables
 Payment of wages, salaries and other payment to employees
 Receipts from premium and payment of claims (insurance co.)
 Payment of and refund of income tax unless these are identified with
investing or financing activities.
 INVESTING ACTIVITIES
Investing activities are the acquisition and disposal of the long
term assets and other investments, not included in the cash
equivalents.
CASH FLOW FROM INVESTING ACTIVITIES ARE :-
 Purchase of fixed assets. (including intangible assets)
 Receipts from sale of fixed assets. (including intangible assets)
 Receipts from sale of securities
 Payment for purchase of securities
 Advances and loans made to third parties
 Receipts from repayment of advances and loans made to third parties
 FINANCING ACTIVITIES
Financing activities are the activities which results in change in size and
composition of owner’s capital and borrowings of the enterprise from other
sources.
CASH FLOW FROM FINANCING ACTIVITIES ARE:-
 Proceeds from the issue of shares or other similar instruments
 Proceeds from the issue of debentures, loans, bonds and other short term
borrowings
 Payment for buy back of equity shares
 Repayment of the amount borrowed including redemption of debentures
 Payment of dividend both on equity and preference shares
 Payments of interest on debentures and loans(short and long term)
 Increase or decrease in bank overdraft and cash credit
 FORMAT OF CASH FLOW STATEMENT (INDIRECT
METHOD) for the year ended….(As per AS-3 Revised)
Particulars Amount
1. CASH FLOW FROM OPERATING ACTIVITIES
Net profit before tax and extraordinary items ……………….[A] xxxxx
Add: non-cash and non-operating items debited to p/l a/c…….[B]
Depreciation xx
Goodwill, patents and trademarks amortised xx
Interest on bank overdraft/cash credit xx
Interest on borrowings xx
writing off underwriting commission/share issue
xx
Loss on sale of fixed assets
Provision for tax xx xxxxx
Increase in provision for doubtful debts* xx
Less : non-operating items credited to p/l a/c……………………….[C]
Interest received xx
Rent received
profit on sale of assets xx xxxxx
Decrease in provision for doubtful debts* xx xxxxxxxx
Operating profit before working capital changes…….. [A]+[B]-[C] = [D]
 Particulars Amount

Add: Decrease in current assets and increase in current liabilities [E]

Decrease in inventories
xx
Decrease in trade receivables
xx
Decrease in accrued income & prepaid expenses
xx xxxxxx
Increase in trade payables
xx
Increase in outstanding expenses & advance incomes
xx
Less: Increase in current assets and decrease in current liabilities [F]
Increase in inventories xxxxxx
xx
Increase in trade receivables xxxxxxx
xx
Increase in accrued income & prepaid expenses
xx
Decrease in trade payables
xx
 Particulars Amount

2. CASH FLOW FROM INVESTING ACTIVITIES

Proceeds from sale of fixed assets
xxx
proceeds from sale of investments
xxx
Proceeds from sale of intangible assets
xxx
Interest and dividend received
xxx xxxxxxxx
Rent received
xxx
Payment for purchase of fixed assets
(xxx)
Payment for purchase of investment
(xxx)
Payment for purchase of intangible assets
(xxx)
Extra ordinary item(Insurance claim on machinery against fire (+/-)
xxx
Cash flow from (or used in) investing activities
 Particulars Amount
3. CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of shares and debentures
xx
Proceeds from other long term borrowings
xx
Increase /decrease in bank overdraft
xx
Payment of final dividend
(xx)
Payment of interim dividend
(xx) xxxxx
Payment of interest on loan and debentures xxxxxxxxx
(xx) XXXXXXXX
Repayment of loan xxxxxx
(xx)
Redemption of debentures and preference shares
(xx)
Payment of share issue expense and underwriting commission xxxxxxxx
(xx)
Payment for buy back of shares
(xx)
Cash flow from ( or used in) financing activities
4. NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS (1+2+3)