2.  Cash flow statement is a statement which
describes the inflows (sources) and outflows
(uses) of cash and cash equivalents in an
enterprise during a specified period of time.
 Such a statement enumerates net effects of the
various business transactions on cash and its
equivalents and takes into account receipts and
disbursement of cash.
 A cash flow statement summarizes the causes of
changes in cash position of a business enterprise
between dates of two balance sheets.

3.  Cash comprises cash on hand and at bank.
 Cash equivalents are short term, highly liquid
investments that are readily convertible into
cash.
 Cash flows are inflows and outflows of cash and
cash equivalents.
 Flow of cash is said to have taken place when any
transaction makes changes in the amount of
cash and cash equivalents.
 If the effect of transaction results in the increase
of cash and its equivalents, it is called an inflow
(source) and if it results in the decrease of total
cash, it is known as outflow (use) of cash.

4. Funds Flow Statement Cash Flow Statement
It is based on a wider concept It is based on a narrower of
of funds, i.e., working capital. funds, i.e., cash.
It is based on accrual basis of It is based on cash basis of
accounting. accounting.
Schedule of changes in working No such schedule of changes in
Capital is prepared to show the working capital is prepared.
changes in current assets and
current liabilities.
Fund Flow Statement reveals the It is prepared by taking the opening
sources and applications of funds. balance of cash, adding to this all
The net difference between sources the inflows of cash and deducting
and applications of funds represents the outflows of cash from the total,
net increase or decrease in working the difference represents the closing
capital. balance of cash.
It is useful in planning intermediate It is more useful for shot-term
and long term financing. analysis and cash planning of the
business.

5.  Since a cash flow statement is based on the cash
basis of accounting, it is very useful in the
evaluation of cash position of a firm.
 A projected cash flow statement can be prepared
in order to know the future cash position of a
concern so as to enable a firm to plan and
coordinate its financial operations properly.
 A comparison of the historical and projected
cash flow statements can be made so as to find
the variations and deficiency or otherwise in the
performance so as to enable the firm to take
immediate and effective action.
Contd…

6.  A series of intra-firm and inter-firm cash flow
statements reveals whether the firm’s liquidity
(short-term paying capacity) is improving or
deteriorating over a period of time and in
comparison to other firms over a given of time.
 Cash flow statement helps in planning the
repayment of loans, replacement of fixed assets
and other similar long-term planning of cash.
 It is also significant for capital budgeting
decisions.
Contd…

7.  Cash flow analysis is more useful and
appropriate than funds flow analysis for short –
term financial analysis as in a very short period
it is cash which is more relevant then the
working capital for forecasting the ability of the
firm to meet its immediate obligations.

8. The preparation of cash flow statement
involves the determining of:
1. Inflows or sources of cash
2. Outflows or application of cash

9.  Sources of cash inflows:
1) Cash flow from operation.
2) Increase in existing liabilities or creation of
new liabilities.
3) Reduction in or sale of assets.
4) Non-trading receipts.
 Application of cash or cash outflows:
1) Cash lost in operations.
2) Decrease in or discharge of liabilities.
3) Increase in or purchase of assets.
4) Non-trading payments.

10. This statement is prepared in two formats:
1. Report form
2. T form or an account form or self balancing
type

11. Cash balance in the beginning Rs.
Add: Cash inflows:
Cash flow from operation
Issue of share capital
Issue of debentures
Raising of loans
Sale of assets
Collection from debtors
Non-trading receipts such as dividends received, income tax refund
Total
Less: Applications or Outflows of Cash:
Cash lost in operations
Redemption of preference share capital
Redemption of debentures
Repayment of loans
Purchase of assets
Non-trading payments such as-
Payments of dividends
Payment of tax
Cash Balance at the end

12. T Form or an Account Form or Self Balancing Type
Cash Flow Statement
(For the year ended…………)
Rs. Rs.
Cash balance in the beginning Cash lost in operations
Add: Cash Inflows: Redemption of preference
Cash flow from operation share capital
Issue of share capital Redemption of debentures
Issue of debentures Repayment of loans
Raising of loans Purchase of assets
Sale of assets Payment of dividends
Collection from debtors Payment of tax
Dividends received Cash balance at the end
Refund of tax
Total