cash flow statement

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cash flow statement a detailed study

cash flow statement a detailed study

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  • 1. Cash Flow Statement
  • 2. Contents
    Objectives and uses
    Difference between Cash Flow and Fund Flow Statements
  • 3. Meaning
    Cash: Cash means all cash + cash equitable + marketable securities + bank balance .
    Flow: Flow means flow of cash from business to economy and economy to businessi.e. cash inflows and cash outflows.
    Statement : Statement is a performa prescribed by Charted Accountant Act,1948.
    Cash Flow Statement is a statement o f inflows (sources) and outflows (uses) of cash and cash equivalents in an enterprise during a specified period of time.
  • 4. Continued…..
    A cash flow statement summarizes the causes of changes in cash position of a business enterprise between dates of two balance sheets.
    A statement a cash flows reveals the movements of cash of a business enterprise for the given accounting period indicating specifically how the cash was generated.
    Statement of cash flow is required for short range financial planning.
  • 5. Classification
    As per Accounting Standard-3 (revised) thechanges resulting in cash inflows and cash outflows arise on account of three types of activities –
    • Cash Flow form Operating Activities:
    Operating activities are the principle revenue producing activities of the enterprise and other activities that are not investing and financing activities. Hence, these are the results of those transactions and events that determines the net profit or loss.
  • 6. Continued….
    Examples are:
    Cash receipts from the sale of goods and the rendering of services
    Cash receipts from royalties, fees, commissions and other revenues
    Cash payments to suppliers of goods and services
    Cash payments to and on behalf of employees
    Cash receipts and cash payments of an insurance enterprise for premiums and claims, annuities and other policy benefits
    Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities
    Cash receipts and payments relating to future contracts, forward contracts, option contracts and swap contracts when the contracts are held for dealing or trading purposes.
  • 7. Continued….
    • Cash Flow from Investing Activities:
    Investing activities include the acquisition and disposal of long-term assets and other investments not included in cash equivalents. The separate disclosure of cash flows arising from investing activities is important.
    Examples are:
    • Cash payments to acquire fixed assets (including intangibles)
    • 8. Cash receipts from disposal of fixed assets (including intangibles)
  • Continued….
    • Cash payments to acquire and cash receipts from disposal of shares, warrants or debt instruments of other enterprises and interests in joint ventures.
    • 9. Cash advances and loans made to 3rd parties
    • 10. Cash payments and receipts for future contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the payments are classified as financing activities
  • Continued….
    • Cash Flow from Financing Activities:
    The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims of future cash flows by providers of funds (both capital and loan)to the enterprise. 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.
  • 11. Continued….
    Examples are:
    • Cash proceeds from issuing shares or other similar instruments
    • 12. Cash proceeds from issuing debentures, loans, notes, bonds and other short or long term borrowings, and
    • 13. Cash repayments of amounts borrowed such as redemption of dentures, bonds, preference shares.
  • Format of Cash Flow Statement
    ABC Limited
    For the year ended…………..
    (A) Cash Flows from Operating Activities:
    Net Profit before tax & extraordinary items
    Adjustment 1:
    Depreciation& Amortization xxx
    Provision for Doubtful Debts xxx
    Foreign Exchange gain/loss xxx
    Dividend xxx
    Interest xxx
    Gain/ Loss on sale of fixed assets/investments xxx xxx
  • 14. Continued….
    Operating Profit before Working Cap. Changes xxx
    Adjustment 2 for changes in working capital:
    Bills Receivables xxx
    Debtors xxx
    Inventories xxx
    Prepaid Expenses xxx
    Bills Payable xxx
    Creditors xxx xxx
    Cash Generated from Operations xxx
    Income tax paid xxx
    Cash before Extraordinary Items xxx
  • 15. Continued….
    Extraordinary Items xxx
    Net Cash from (used in) Operating Activities xxx
    (B) Cash Flow from Investing Activities:
    Purchase of Fixed Assets xxx
    Proceeds from Sale of fixed assets xxx
    Purchase of Investments xxx
    Proceeds from Sale of investments xxx
    Interests received xxx
    Dividend received xxx
    Net Cash from (used in) Investing Activities xxx
  • 16. Continued….
    (C) Cash Flow from Financing Activities:
    Proceeds from Issue of Shares/ Debentures xxx
    Proceeds from Long-term debts xxx
    Repayment of Long-term Debts xxx
    Redemption of Debentures xxx
    Redemption of Preference Shares xxx
    Dividend paid xxx
    Interest paid xxx
    Net Cash from (used in) Financing Activities xxx
    Net increase/decrease in cash and Cash Equivalents (A+B+C) xxx
    Cash and Cash Equivalents at the beginning of the year xxx
    Cash and Cash Equivalents at the end of the year xxx
  • 17. Objectives & Uses
    The primary objective of CFS is to provide information regarding the cash receipts and payments of an enterprise for an accounting period.
    The secondary objective is to disclose information about the operating, investing and financing activities of an enterprise during an accounting period.
    According to AS-3 (Revised), the objective of cash flow statement is to provide information about the cash flows of an enterprise to the users of financial statements with a basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilize those cash flows so that they may know about the historical changes in cash and cash equivalents.
  • 18. Continued….
    In brief, the cash flow statement serves the following purposes:
    • Helpful in planning and Co-ordination
    • 19. Helpful in Control
    • 20. Useful in Internal Financial Management
    • 21. Knowledge of changes in Cash position
    • 22. Helpful in Short-term financial decisions
  • Limitations
    The cash flow statement has the following limitations:
    Misleading Comparisons
    Influenced by changes in Management Policies
    Incomplete Substitutes
  • 23. Difference b/w Cash Flow & Fund Flow
    Cash Flow Statement
    Meaning of fund: Funds means only cash which is a component of net current assets.
    Objective: Its objective is to know about the changes occurred in cash position between two balance sheet dates.
    Basis of preparation: Increase in current liability or decrease in current asset (except cash) results in an increase in cash or vice-versa.
    Fund Flow Statement
    Fund means net working capital (i.e. current assets minus current liabilities).
    Its objective is to know about the changes occurred in net working capital between two balance dates.
    Increase in current liability and decrease in current asset results in a decrease in net working capital or vice-versa.
  • 24. Continued….
    Effect of transaction: Effect of a transaction on cash is considered.
    Utility: Cash flow statement is useful for short-term analysis.
    Statement of changes in Working Capital: Nosuch statement is prepared separately in cash flow statement.
    Cash Balances: Opening and closing balances of cash are shown in cash flow statement.
    Effect of a transaction on net working capital is considered.
    Fund flow statement is useful for long-term analysis.
    A separate statement for changes in working capital is prepared in fund flow statement or analysis.
    Such balances of cash are shown in statement of changes in working capital.
  • 25. Thank You