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Cash Flow Statement

The document discusses the purpose and components of a cash flow statement. A cash flow statement assesses a business's ability to generate and use cash, as profit and loss statements do not show actual cash flows. It classifies cash flows into three categories: operating, investing, and financing activities. Operating activities involve core business operations, investing activities involve long-term assets and investments, and financing activities involve raising and repaying financial capital. The document provides examples of transactions for each category and outlines the direct and indirect methods for preparing the cash flow statement.

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Debasya Sahoo
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38 views12 pages

Cash Flow Statement

The document discusses the purpose and components of a cash flow statement. A cash flow statement assesses a business's ability to generate and use cash, as profit and loss statements do not show actual cash flows. It classifies cash flows into three categories: operating, investing, and financing activities. Operating activities involve core business operations, investing activities involve long-term assets and investments, and financing activities involve raising and repaying financial capital. The document provides examples of transactions for each category and outlines the direct and indirect methods for preparing the cash flow statement.

Uploaded by

Debasya Sahoo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Cash Flow Statement

Why Cash Flow Statement


• To assess the ability of the business to
generate cash and its utilization
• P&L based upon accrual concept doesn’t
reveal cash from operations
• Other sources and uses of cash impact
balance sheet
• To have an overview of sources and uses of
cash in the accounting period a Cash Flow
Statement is prepared
What is Cash
• Cash comprises cash on hand and deposits
with banks
• Cash Equivalents
– Short term, highly liquid investments
– Readily convertible into cash
– Insignificant risk of changes in value
Cash Flow Statement
• To be prepared and presented for each period for which
financial statements are prepared
• Cash flow should be classified into
– Operating Activities
– Investing Activities
– Financing Activities
• The sum of cash flow from these activities should explain
change in cash balance over the accounting period
Operating Activities
• Principal revenue-generating activities
• Generally result from the transactions and other events
that enter into the determination of net profit or loss
• Examples
– Receipts from sale of goods or rendering of services
– Payments to suppliers for goods and services
– Payment to employees
– Payment of income tax
Investing Activities
• Acquisition and disposal of long-term assets and other
investments
• For acquiring resources intended to generate future
income and cash flow
• Examples
– Payment to acquire fixed assets
– Receipts from disposal of fixed assets
– Payments for acquiring investments
– Cash advances and loans made
– Recovery of cash advances and loans
– Receipt of dividend/ interest on investments
Financing Activities
• That result in changes in the size and composition of the
owners’ capital and borrowings of the enterprises
• Useful to predict claim on future cash flow by the
providers of funds
• Examples
– Cash proceeds from issue of shares
– Cash proceeds from issuing debentures and other long term
borrowings
– Cash repayments of amount borrowed
– Payment of interest / dividend
Taxes on Income
• Tax paid to be classified as cash flow from
operating activities unless they can be
specifically identified with financing and
investing activities
Non Cash Transactions
• Investing and Financing Transactions that do
not require use of cash
• Exclude from cash flow statement
• Disclose separately elsewhere in the financial
statements
Cash From Operations
• Direct Method
– Major classes of receipts and payments for
operating activities are considered
• Indirect Method
– Adjust Net profit or Loss
• non-cash items
• changes in current assets and liabilities
• Items that can be classified as financing or investing
cash flows
Disclosure
• Components of Cash and cash equivalents
• Reconciliation of amounts in the Cash Flow
Statement with the items reported in the
Balance Sheet
• Amount of significant cash and cash
equivalents held by the enterprise that are
not available for use by it

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