This document discusses cash flow statements and their importance for businesses. It provides definitions and explanations of key terms: - A cash flow statement summarizes the changes in a company's cash position between two balance sheet dates. It shows cash inflows and outflows. - Cash flow statements are based on actual cash amounts, while funds flow statements are based on working capital and can include non-cash items. - Cash flow statements are more useful for short-term analysis and cash planning as they show a company's immediate liquidity, while funds flow statements are better for long-term planning.

2. Introduction:
Cash plays very important role in the entire economic
life of a business
A firm needs cash to make payments to its suppliers,
day to day expenses & to pay salaries, wages, interest,
dividends etc.
It is very essential to a firm to maintain adequate cash
balance.
“A statement of changes in the financial position of
firm on cash basis is called cash flow statement”.
This summarizes the causes of changes in cash
position of a business enterprise between dates of two
balance sheets

3. Basis of Difference Funds Flow Statement Cash Flow Statement
Basis of Concept It is based on Working
Capital
It is based on Cash only
Basis of Accounting Accrual Basis Cash Basis
Schedule of Changes in
Working Capital
Must be prepared on CA and
CL
No need to prepare
Method of Preparation It reveals the net increase or
decrease in working capital &
sources and application of
funds in an organisation
between two accounting
periods
Prepared based on
opening balance of cash
adding to this all the
inflows and deducting the
outflows of cash from the
total.
Basis of usefulness It is for long-term and
medium term
More useful in short term
analysis and cash planning
of the business

4. To know cash position
To plan and coordinate future financial activities
To compare with other firms
It helps for preparation of long term plans through
short term analysis (Capital Budgeting)
Cash flow analysis if more useful than funds flow to
know immediate absolute liquidity position of the firm
It is a narrow concept
It exclusions of near cash items

5. An increase in a liability is a source of cash
A decrease in a liability is an application or out flow of cash
An increase in an asset is an application of cash
An decrease in an asset is an source of cash
CASH INFLOWS Amount CASH OUT FLOWS Amount
Cash balance in the
beginning
Sales of Assets
Issue of Shares
Issue of Debentures
Raising of Loans
Collection from Debtors
Dividend received
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Redemption of Shares
Redemption of
Debentures
Repayment of Loans
Purchase of Assets
Dividend payment
Tax payment
Cash Balance @ end
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx xxx

6. Particulars Amount Particulars Amount
To Depreciation
To Transfer to Reserves
and Provisions
To Writing of intangible
assets
To Out standing exp
To Prepaid expenses
To Loss on Sale of Fixed
Assets
To Dividend Paid
To Balance C/d
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
By Balance B/d
By Profit on sales of
Fixed Assets
By Dividend received
By Outstanding income
By Cash flow from
Operations
xxx
xxx
xxx
xxx
xxx
XXX XXX

7. The following details are available from a company
Liabilities 1993 Rs. 1994 Rs. Assets 1993 Rs. 1994 Rs.
Share Capital
Debentures
Reserve for
doubtful debts
Trade Creditors
P & L A/c
70,000
12,000
700
10,360
10,040
74,000
6,000
800
11,840
10,560
Cash
Debtors
Stock
Land
Goodwill
9,000
14,900
49,200
20,000
10,000
7,800
17,700
42,700
30,000
5,000
1,03,100 1,03,200 1,03,100 1,03,200
1. Dividend paid Rs 3,500/-
2. Debenture paid off Rs. 6,000
3. Land was purchased for Rs. 10,000
4. Amount provided for amortization of good will Rs. 5,000/-
Prepare cash flow statement

8. Under the accrual basis of accounting, expenses are matched
with the related revenues and/or are reported when the
expense occurs, not when the cash is paid. The result
of accrual accounting is an income statement that better
measures the profitability of a company during a specific time
period.