Cash flow statement

GROUP 12
QUESTION:
Discuss briefly the major classifications of cash
flows as per AS-3 . Why is it important to disclose
certain non-cash transactions and how should they
be disclosed ?

FINANCIAL
STATEMENTS OF
COMPANIES
MADE BY:
HIMANSHU SINGH (192296)
ANSH SINGLA (192212)
NAMAN KUMAR (192248)

INTRODUCTION
•
•
Financial statements(or financial report)
is a formal record of the financial
activities of a business, person or other
entity.
Relevant financial information is
presented in structured manner and in
easy form to understand.

OBJECTIVE
•
•
The objective of the financial statements is to provide information
about the financial position ,performance and the changes in
financial position of the enterprise that is useful to wide range of
users in making economic decisions.
Financial statements should be relevant , reliable ,understandable
and comparable.

REQUIREMENT
OF FINANCIAL
STATEMENTS
•
•
•
The ﬁnancial statements provide true &
fair view of the company and comply with
the AS and should be in the form provided
by Schedule III of Companies Act 2013
The Financial Statements should be laid in
the AGM within six months from the end of
the ﬁnancial year
The holding company shall in addition,
prepare a Consolidated Financial
Statement of the company along with its
all subsidiaries , associates and joint
ventures and lay before the Annual General
Meeting.

•
•
•
Basic Financial Statements
includes:
Balance sheet or statement of
financial position or net worth
statement
Income Statement or statement of
comprehensive income , statement of
revenue & expense, profit and loss
report
Cash flow statement or fund flow
statement

BALANCE SHEET
•
•
•
•
•
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The balance sheet is a statement of financial position
at a specific point of time or a financial snapshot of the
business
The balance sheet reflects the result of all past
transactions but not how the current financial position
was obtained
It is prepared at the end of the financial year
The Balance sheet consists of three main parts:
Assets
Liabilities
Net worth( owner’s equity)

ASSETS
Current Assets
The assets which can be converted into cash
within a span or period of 1 year are called current
asset
Current assets are very important to business as they are used to fund
day-to-day business operations and to pay for the ongoing operating
expenses
It includes current investments ,inventories ,Trade receivables ,short
term loans ,cash and cash equivalent

NON-CURRENT ASSETS
All those assets whose
full value cannot be
realized within the normal
operating cycle of the
company are termed as
non -current assets
It is held primarily for the
purpose of production or
trade and is crucial for the
continuation of the
business
It includes tangible & non-
tangible assets ,non-
current investments, long
term loans & advances
and other non-current
assets.

LIABILITIES
•
•
•
Current Liabilities
All debts and obligations that are due
within the operating cycle of the
company are termed as current liabilities
It is used for calculating important
ﬁnancial ratios and can affect the
working capital of the business
It includes Trade payables ,short term
borrowings ,short term provisions and
other current liabilities

NON-CURRENT
LIABILITIES
•
•
•
All the dues and obligations that are listed on
the balance sheet which are due after the
operating cycle (after 1 year)of the company
are termed as non-current liabilities
It is an important source of entity’s long-term
ﬁnancing and has a provide a good scope of
expansion
It includes debentures, bonds payable ,
unsecured or long- term loans etc.

OWNER’S
EQUITY
•
•
Owner equity, or net worth ,is the
difference between total assets and total
liabilities
It reﬂects the owner’s stake in the
business and includes investment capital
and retained proﬁts
Total Assets – Total Liabilities = Equity
“have” “owe” “what you are worth”

INCOME
STATEMENT
•
•
•
1.
Income statement, also known as the
Profit and Loss Statement, reports the
company’s financial performance in
terms of net profit or loss over a
specified period statement
It provides detailed revenue operations
of the company and act as an analysis
tool for the investors
Contents of Income Statement of the
company includes:
Net Operating Income : Net operating
income is a company’s income after
operating expenses are deducted

Non-operating Income : Non
operating income is the
portion of an organization’s
income that is derived from
activities not related to its
core operations
Investment Income : Income
resulting from interest
payments, dividends, capital
gains upon the sale of
security or other assets
Accumulated and
comprehensive income :
Accumulated income
reported under equity section
of the balance sheet (ex.
Retained earnings, net
income & dividends
After tax operating income:
Income after deducting all
federal, state and withholding
taxes result in disposable
income which helps to
measures company’s
proﬁtability without taking
capital structure.

FINANCIAL
RATIOS
a)
b)
c)
A financial ratio or accounting ratio is a relative
magnitude of two selected numerical values taken
from an enterprise’s financial statements
Financial ratios are important tools for
quantitative analysis as they help to evaluate
company’s performance and compare it with
similar businesses in their industry. They also help
in identifying trends in business and provide early
warning signs to the business .
Three most used ratios are :
Liquidity Ratios
Solvency Ratios
Efficiency Ratios

CASH FLOW STATEMENT
•
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A cash flow statement is a summary of cash receipts and cash payments
about the operating, investing and financing activities of a business
enterprise
Cash flow statement is used :
To know the liquidity and solvency position
To know the ability of paying dividends
To predict future cash flows
To know the managerial efficiency and for inter-firm comparison
To know the changes in assets and liabilities

OBJECTIVES
The primary objective of
cash flow statement is
to provide information
about the cash receipts
and cash payments of a
business entity for the
accounting period
covered by the income
statement
1
The secondary objective
of cash flow statement
is to provide information
about a business entity’s
operating , investing and
financing activities
during the accounting
period of the company
2

LIMITATIONS
OF
CASH FLOW
STATEMENTS
Cash flow statement records inflows and
outflows of cash only hence, significant non-
cash transactions are omitted
It is not difficult to influence cash balance by
simply postponing cash purchases and sundry
payments
Cash flow statement shows the net cash
flows not the net profit for a given period, so it
is not a substitute for the income statement
There is a gap between net income figure and
net cash flow ,so it does not show the true
financial position of business in totality

DISCLOSURE
OF NON-CASH
TRANSCTIONS
& ITS MANNER
Some investing and financing activities
does not involve cash or cash
equivalents but do represent significant
change in financial position of the
enterprise . So even noncash
transactions of an investing and
financing nature are disclosed in the
financial statements but if they affect
financial conditions significantly, the
FASB (Financial Accounting Standards
Board) requires that they should be
disclosed in either a separate schedule
at the bottom of the statement of cash
flows or in a separate note or
supplementary schedule of the financial
statements.

MEANING OF CASH
FLOWS
•
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It means the movement of cash into enterprise
referred to as sources (Cash inflows) and also
movement of cash out of the enterprise referred to
as uses (Cash outflows).
Inflows and Outflows are reported for:
Operating activities
Investing activities
Financing activities

OPERATING ACTIVITIES
Operating activities are the principal revenue producing activities
of a business enterprise and include cash flows from those
transactions and events that enter into the determination of net
profit or loss.
•
•
Cash sales and received from debtor
Commission & fees and Royalty
Cash
Inflow
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Cash purchases and payment to creditors
Cash operating and manufacturing expenses
Payment of wages and income tax
Cash
Outflow

INVESTING ACTIVITIES
• Investing activities include the purchase and sale of long-term
productive assets such as land, building ,equipment which are are
not for resale purposes.
•
•
Sale of fixed assets and
investments
Interest and Dividend received
Cash
Inflow
•
•
Purchase of fixed assets and
investments
Purchase of securities or
software
Cash
Outflow

FINANCING ACTIVITIES
Financing activities are activities that result in changes in the size
and composition of owner’s capital and borrowings of the
enterprise.
•
•
Issue of shares & debentures for
cash
Proceeds from long-term
borrowings
Cash
Inﬂow
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Repayment of loans or lease
liability
Payment of interests and
dividends
Repayment of preference shares
Cash
Outﬂow

DIFFERENCE BETWEEN CASH FLOW
AND FUND FLOW STATEMENT

BIBLIOGRAPHY
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Books
JR Monga
Bhushan Kumar Goyal
Website
www.Investopedia.com
www.readyratios.com
www.cleartax.in
www.Wikipedia.in

Cash flow statement

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