CASH FLOW STATEMENT

1. Meaning of Cash Flow Statement

Cash flow statement is an additional information to the users of financial statements

This statement exhibits the flow of incoming and outgoing cash

In short, cash flow statement exhibits the source of cash and application of cash

2. Objectives of Cash Flow Statement

Balance sheet statement provides the information of financial position of an entity as on a

particular date only

Cash flow statement analyses flow of cash between two periods of time

It helps to identify the historical changes in the flow of cash & cash equivalents

It helps to determine the future requirement of cash & cash equivalents

This statement assesses the ability of the enterprise to generate cash and cash equivalents

It also assesses the liquidity and solvency of the enterprise

3. Definitions

Cash comprises of cash in hand and demand deposits with banks

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

Cash flows are inflows and outflows of cash and cash equivalents.Cash flows exclude

Movements between cash and cash equivalents

4. Format of a Cash Flow Statement

Cash Flow Statement for the year ended 31-03-20XX

(a) Cash and cash equivalents at the beginning of the period

(b) Cash flows from operating activities

XXXX

XXXX

(c) Cash flows from investing activities XXXX

(d) Cash flows from financing activities XXXX

(e) Cash and cash equivalents at the end of the period = a+b+c+d XXXX

5. Classification of cash flows

Operating activities are the principal revenue-producing activities of the enterprise and

other activities that are not investing or financing activities.

Examples:

o Cash receipts from sale of goods / rendering services

o Cash receipts from royalties, fees, commissions and other revenue

o Cash payments to suppliers of goods and service

Investing activities are the acquisition and disposal of long-term assets and other

investments not included in cash equivalents.

Examples

o Cash payments to acquire fixed assets

o Cash receipts from disposal of fixed assets

o Cash payments to acquire shares, warrants or debt instruments of other enterprises

and interest in joint ventures

Financing activities are activities that result in changes in the size and composition of the

owners’ capital (including preference share capital in the case of a company) and

borrowings of the enterprise.

o Issue of share

o Buy back of shares

o Redemption of preference shares

o Issue / redemption of debentures

o Long term loan / payment thereof

Net cash flow from

Operating Activities Investing Activities Financing Activities

Cash Flow Statement under Direct Method

Cash flow statement

Rs. Rs.

Opening Balance of Cash and Cash Equivalents

Cash Flow from Operating Activities

XXX

Cash received from sale of goods XXX

Cash received from debtors XXX

Cash received from sale of services XXX XXX

Less

Payment for cash purchases (XXX)

Payment to creditors (XXX)

Payment for operating expense (XXX)

(Eg: power, rent etc)

Payment for wages and salaries (XXX)

Payment of income tax (XXX) (XXX)

Net cash flow from operating activities XXX

Cash Flow from Investing Activities

Purchase of Fixed Assets

Sale of Fixed Assets

Purchase of shares/ debentures

Sale of shares/ debentures

Net Cash flow from Investing Activities

Cash Flow from Financing Activities

Cash from issue of shares and debentures

Repayment of loan

Repayment of debentures

Dividends Paid

Interest Paid

Net Cash flow from Financing Activities

Closing Balance of Cash and Cash Equivalents

(XXX)

XXX

(XXX)

XXX

XXX

(XXX)

(XXX)

(XXX)

(XXX)

XXX

XXX

XXX

Cash flows statement under Indirect method

Rs. Rs.

Opening Balance of Cash and Cash Equivalents XXX

Profit and loss for the period as per P&L A/c XXX

Adjustments for non cash & items considered under other heads

Add: Provisions created

Depreciation

Dividends paid

XXX

XXX

XXX

Effects for changes in working capital (Current Assets, Current

Liabilities)

XXX

Net cash flow from operating activities XXX

Cash Flow from Investing Activities

Purchase of Fixed Assets

Sale of Fixed Assets

Purchase of shares/ debentures

Sale of shares/ debentures

Net Cash flow from Investing Activities

Cash Flow from Financing Activities

Cash from issue of shares and debentures

Repayment of loan

Repayment of debentures

Dividends Paid

Interest Paid

Net Cash flow from Financing Activities

Closing Balance of Cash and Cash Equivalents

(XXX)

XXX

(XXX)

XXX

XXX

(XXX)

(XXX)

(XXX)

(XXX)

XXX

XXX

XXX