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  1. 1. Cash Flow Statement• Profit ≠ Cash • As P & L a/c is prepared on Accrual basis• The term cash mean & include – 1. Cash in Hand 2. Demand deposit with banks p 3. Cash Equivalents
  2. 2. Cash Flow Statement• AS-3 & IAS-7• Cash Flow Statement reflects the movement of cash from three Activities of the firm • Operating Activities • Investing Activities • Financing Activities
  3. 3. ExerciseClassify the following into three activities 1 Borrowed from a bank and purchased land 4,00,000 2 Sold investment securities 7,00,000 3 Paid dividends 3,00,000 4 Issued 500 equity shares 3,50,000 3 50 000 5 Purchased machinery and equipment 1,75,000 6 Bank loan paid 6,50,000 7 Received accounts receivable outstanding 1,00,000 8 Accounts payable increased 1,90,000
  4. 4. Preparation of CFS• Direct Method • Comparatively more useful • Disclose gross receipts & gross payments• I di t Method Indirect M th d • Profit & Loss a/c is reconciled for the effects of transaction of non – cash nature nat re
  5. 5. Format: Direct Method Statement of Cash Flows (Direct Method ) …..Company Name For the year ended….Cash flows from operating activitiesCash received from customersInterest receivedCash paid for merchandiseCash paid for Income taxesNet cash flow from operating activities XXX (A)Cash flows from investing activitiesPurchase of marketable securitiesProceeds from sale of marketable securitiesCash paid for purchase of plant assetsLoan made to borrowersCollection on loansCash received from sale of plant assets XXX (B)Net cash from investing activitiesCash flows from financing activitiesProceeds from borrowingsCash paid to settle short-term debts XXX (C)Cash paid to retire long term debtCash received from issuing stockCash paid for dividendsNet cash provided by financing activities A+B+CNet increase (decrease) in cash XXXCash and cash equivalent at the beginning of the year XXXCash and cash equivalents at the end of the year
  6. 6. Format: Indirect MethodNet profit before tax and extraordinary items(+) Depreciation(+) Amortization of intangible assets(+) Preliminary expenses written off(-) Gain on sale of fixed assets / investments(+) Loss on sale of fixed assets / investmentsOperating profit before working capital changes(+) Decrease in current assets( -) Increase in current assets(+) Increase in current liability(-) Decrease in current liability(-) Income tax paid(±) Extraordinary items ANET CASH FLOW PROVIDED BY (or USED IN ) OPERATING ACTIVITIESCash flows from investing activities(+) Sale of assets / investments(-) Purchase of assets / investmentsNET CASH FLOW PROVIDED BY (or USED IN ) INVESTING ACTIVITIES BCash flows from financing activities(+) Proceeds f P d from long t l term b borrowings i(+) Proceeds from issue of share capital(-) Dividends paid(-) Interest paidNET CASH FLOW FROM FINANCING ACTIVITIES CNet increase / decrease in cash and cash equivalents A+B+C(+) Cash and cash equivalents in the beginning XXXCash and cash equivalents at the end XXXXX
  7. 7. CFS: Indirect Performa• Classify the extraordinary items based on the Activities• Tax flow also to be classified based on the Activities• D not i l d the non – cash transactions Do include h h i • Generally put as note to the statement
  8. 8. Non-Cash items• Purchase of long – term assets by issuing equity share capital. q y p• Retirement of bonds by issuing equity share p capital.• Issue of debt to purchase fixed assets.• Exchange of non cash assets for other non cash assets.• Conversion of preferred share to equity share
  9. 9. Steps to Prepare CFS• Information needed for its preparation – 1. Comparative Balance Sheet 2. Income Statement 3. Additional information• Steps to prepare CFS • Analyse the Non – Current Accounts • Analyse the profit & loss figure • Chart the cash flow statement