Cash Flow Statement with Exercise, Conducted by: Md. Saiful Islam ACA Senior Deputy Director The Institute of Chartered Accountants of Bangladesh

1. Foundation Course for Probationary Officers-
Agrani Bank Limited
Topic: Cash Flow Statement with Exercise
Conducted by:
Md. Saiful Islam ACA
Senior Deputy Director
The Institute of Chartered Accountants of Bangladesh
1Cash flow statement

2. Is Cash Flows Statement (CFS) required?
Fig.: effect of accrual basis of accounting
Expenses both
paid in Cash and
Outstanding Income Statement
Profit/(Loss) =
Revenues -
ExpensesRevenues
received in Cash
and Receivables
2Cash flow statement

3. Purpose of the CFS
• Primary purpose
Cash Receipts and Cash Payments
• Secondary objective
Operating Activities
Investing Activities
Financing Activities
Cash flow statement 3

4. Operating Activities
A company’s typical daily processes that
generate income. Operating activities pertain
to a company’s core business activities, such
as manufacturing, distributing, marketing and
selling a product or service. These activities
should provide the majority of a company’s
cash flow and will largely determine whether
a company is profitable.
Operating activities include the cash effects
of transactions that create revenues and
expenses. They, thus enter into the
determination of net income.
Cash flow statement 4

5. Significance of Operating Activities
Investors examine a company’s cash flow
from operating activities separately from the
other two components of cash flow to see
where a company is really getting its money
from. They want to see positive cash flow
because of positive income from operating
activities, which are recurring, not because
the company is selling off all its assets, which
results in one-time gains. The company’s
balance sheet and income statement help
round out the picture of a company’s financial
health (page # 1).
Cash flow statement 5

6. Significance of Operating Activities (Con.)
Income Statement (Tk. In million) Cash Flow Statement (Tk. In million)
Sales Revenue 100 Received from Customer 40
Less: COGS 50 Payment to suppliers (45)
Gross Profit 50 Payment of other expenses (30)
Other Expenses 30 Profit on sale of assets 30
20 Cash flow from operating activities (5)
Add: Profit on sale of assets 30
Net profit 50
Cash flow statement 6

7. Investing Activities
• Acquiring and disposal of Investments
• Acquiring and disposal of productive long-
lived assets
• Lending money and collecting the loans (e.g.
purchase of Debenture and disposal of
Debenture)
Cash flow statement 7

8. Financial Activities
• Obtaining cash from issuing debt and
repaying the amounts borrowed
• Obtaining cash from stockholders and
providing them with a return on their
investment
Cash flow statement 8

9. Methods of CFS Presentation
Direct Method Indirect Method
Cash operating expenses
and revenues are recorded
directly
Operating cash flows are calculated by
adjusting non-cash transactions with net
profit.
Cash receipts from operating
revenues
Cash flow statement starts with net
profit
Cash payments for operating
expenses
Non-cash expenses are added with the
net profit
Cash payments for current
assets and current liabilities
Increase in current assets and decrease
in current liabilities are deducted from
net profit
Cash received from current
assets and current liabilities
Decrease in current assets and
increase in current liabilities are added
with net profit.
Please see page # 3: Format of Cash Flows Statement
Cash flow statement 9

10. Preparation of CFS (Direct)
Accounts Receivables
Particulars Tk Particulars Tk.
Opening
balance
26,000 Cash received
(balancing figure)
848,000
Sales
revenues
890,000 Closing balance 68,000
916,000 916,000
See page # 5
Cash flow statement 10

11. Payment to Suppliers
Inventories Account
Opening inventory 0 Cost of goods sold 465,000
Purchase (balancing
figure)
519,000 Closing inventory 543,000
519,000 519,000
Accounts Payable Account
Cash payments
(balancing figure)
536,000 Opening balance 40,000
Closing balance 23,000 Purchase 519,000
559,000 559,000
See page # 5
Cash flow statement 11

12. Payment of Accrued Expenses
Accrued Expenses Payable
Cash operating
expenses (balancing) 176,000Opening balance 0
Closing balance 10,000Operating expenses 186,000
186,000 186,000
Please see page # 5
Cash flow statement 12

13. Fixed Assets
Equipment Account
Opening balance 68,000Sale 41,000
Purchase 166,000Closing balance 193,000
234,000 234,000
Land Account
Opening balance 70,000Sale 25,000
Purchase 0Closing balance 45,000
70,000 70,000
Please see page # 5
Cash flow statement 13

14. CFS (Indirect)
Please see page # 5
Cash flow statement 14

15. Guidelines of SEC
• Major classes of gross cash receipts and gross
cash payments from operating activities, using
the direct method
Cash flow statement 15

16. IAS 7
Method Preferably direct method.
Non-cash financing
& investing
Should be excluded from CFS and
should be presented as footnote of CFS
Net-presentation
for FIs
Please see page # 7
Interest payment Operating/Investing/Financing
Interest & Dividend
received
Investing/Operating/Financing
Dividend payment Financing/Operating
Income tax Operating
Cash flow statement 16

17. Feedback Session (Banks)
• Interest received
• Interest payment
• Dividends received
• Dividend payments
• Payment to suppliers
• Income tax payment
• Sale of trade security
• Sale of non-trade security
• Purchase of trade security
• Payment of loans and advances
• Recovery of loans and advances
• Profit on sale of assets
Cash flow statement 17

18. Answers
Interest received Operating
Interest payment Operating
Dividends received Investing/Operating
Dividend payments Financing
Payment to suppliers Operating
Income tax payment Operating
Sale of trade security Operating
Sale of non-trade security Investing
Purchase of trade security Operating
Payment of loans and advances Operating
Recovery of loans and advances Operating
Profit on sale of assets Operating
Cash flow statement 18