2. Meaning
Cash: Cash means all cash + cash equivalents + marketable
securities + bank balance .
Flow: Flow means flow of cash from business to economy and
economy to business i.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.
3. 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.
4. Continued….
In brief, the cash flow statement serves the
following purposes:
• Helpful in planning and Co-ordination
• Helpful in Control
• Knowledge of changes in Cash position
• Helpful in Short-term financial decisions
5. Classification
As per Accounting Standard-3 (revised) the
changes 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
6. Continued….
Examples are:
a. Cash receipts from the sale of goods and the
rendering of services
b. Cash receipts from royalties, fees, commissions
and other revenues
c. Cash payments to suppliers of goods and
services, etc.
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)
Cash receipts from disposal of fixed assets
(including intangibles)
8. 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.
9. Continued….
Examples are:
Cash proceeds from issuing shares or other
similar instruments
Cash proceeds from issuing debentures, loans,
notes, bonds and other short or long term
borrowings, and
Cash repayments of amounts borrowed such as
redemption of debentures, bonds, preference
shares.
10.
11. Limitations
The cash flow statement has the following
limitations:
Misleading picture of cash postion
No coverage of non- cash items
Gap between net income and net cash flow
