cash flow statement a detailed study

1. Cash Flow Statement BY B.K.VASHISHTHA

2. Contents Meaning Classification Objectives and uses Limitations 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. Thus, 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.

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.

9. Cash advances and loans made to 3rd parties

12. Cash proceeds from issuing debentures, loans, notes, bonds and other short or long term borrowings, and

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 Rs. Rs.

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 Rs. Rs.

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 Rs. Rs.

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.

19. Helpful in Control

20. Useful in Internal Financial Management

21. Knowledge of changes in Cash position

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.

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