The document discusses the key components and classification of cash flows in a cash flow statement. It defines operating, investing, and financing cash flows and provides examples of cash inflows and outflows for each classification. The direct and indirect methods for determining cash flows from operations are also described. Additional information required from the income statement, balance sheet, and other sources is outlined. The uses and limitations of the cash flow statement are listed. Finally, the document includes a sample format for the cash flow statement.

1. Cash Flow statement

2. Meaning of Certain Terms:
Cash comprises cash on hand and demand deposit with bank
Cash equivalents are short term, highly liquid investment
e.g. treasury bills.
Cash flows are inflows and out flows of cash & cash equivalent

3. Classification of Cash Flows:
Cash Flow from Cash Flow from
Operating Activity Investing Activity
Cash Flow from
Financing Activity

4. CF from Operating Activities:
Operating cash flow is the cash that a company
generates through running its business.

5. CF from Operating Activities:
Examples of cash flows from operating
activities:
• Cash receipt from the sale of goods and rendering of
services
• Cash receipts from royalties, fees, commissions and other
revenue
• Cash payments to suppliers for goods and services
• Cash payments to and on behalf of employees

6. CF from Investing Activities:
An item on the cash flow statement that reports the
aggregate change in a company's cash position resulting
from any gains (or losses) from investments in the
financial markets and changes resulting from amounts
spent on investments in capital assets such as plant and
equipment.

7. CF from Investing Activities:
Examples of cash flows from investing
activities:
• Cash payments to acquire fixed assets (including
intangibles)
• Cash receipts from disposal of fixed assets
• Cash payments to acquire shares or debt instruments of
other enterprises
• Cash advances and loans made to third parties (other
than advances and loans made by a financial enterprise)

8. CF from Financing Activities:
Financing activities are activities that result in changes in the
size and composition of the owner’s capital (including
preference share capital in the case of a company) and
borrowings of the enterprise.

9. CF from Financing Activities
Examples of cash flows from Financing
activities
• Cash proceeds from issuing shares or other similar
instruments
• Cash proceeds from issuing debentures, bonds and other
short-term borrowing
• Cash repayments of amounts borrowed
• Payments of dividend and interest

10. Information required for
CashFlow Statement:
1.Comparative Balance Sheets: BS at the beginning and at
the end of the accounting period indicate the amount of
changes that have taken place in assets, liabilities and capital
2. Profit and Loss Account: The P & L A/c. of the current
period enables to determine the amounts of cash provided
by or used in operations during the accounting period after
making adjustments for non-cash, current assets and current
liabilities

11. Information required for
CashFlow Statement
3.Additional Data: In addition to the above statements,
additional data are collected to determine how cash has
been provided or used e.g. sale or purchase of assets for
cash.

12. Cash from operations may be
ascertained by either
1. Direct Method known as ‘Cash Sales Method’
or
2. Indirect Method known as ‘ Net Profit Method’

13. Direct Method:
Cash from operations = cash sales – (cash purchase +cash
operating exp.)
*All non cash transactions such as depreciation, written off of
fictitious assets and profit or loss on sale of assets and
investments are not considered.

14. Indirect Method
Normally it is used when amount of sales is not
available

15. Uses of Cash Flow Statement
 Helpful in Planning and Co-ordination
 Helpful in control
 Useful in Internal Financial Management
 Knowledge of Changes in Cash Position
 Helpful in Short-term Financial Decisions

16. Limitations of Cash Flow Statement:
Conflicting areas
Incomplete Substitute
Defective Presentation of Liquidity

17. Format of Cash Flow Statement
Amt. Rs. Amt. Rs.
Particulars
***
A. Cash flow from operating activities:
Net profit before tax
Adjustment for:
***
Depreciation ***
Loss on sale of assets ***
Loss on revaluation ***
Operating Pt. Before working capital changes
Adjustment for: ***
Trade and other receivables ***
Inventories
***
Trade payables
***
Cash generated from operations
Interest paid ***
Taxes paid *** ***
Net cash flow from operating activities

18. Format of Cash Flow Statement
Amt. Rs. Amt. Rs.
Particulars
B. Cash flows from investing activities ***
Purchase of fixed assets
Purchase of investments
Sale of fixed assets
***
Sale of investments ***
Interest received ***
Dividend received ***
Net cash used in investing activities
C. Cash flows from financing activities : ***
Proceeds from issue of shares ***
Proceeds from long term borrowings
***
Repayment of finance/lease liability
***
Dividend paid
Net cash used in financing activities
***
Net increase (Decrease) in cash and cash equivalents *** ***
Cash and cash equivalents at (opening)
Cash and cash equivalents at (closing)

19. Thank you