Cash Flow Statement Ch 5

8/8/2019 Cash Flow Statement Ch 5

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Cash Flow StatementAS-3



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Purpose of Cash Flow Statement

Pr ovide infor mation about cash r ecei pts and

payments dur ing an accounting per iod

Hel ps us to see how financial position

changes dur ing an accounting per iod

Only statement that collects and shows in

one statement the causes of changes in cash

dur ing a financial r e por ting per iod



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Cash and Cash Equivalents

Cash includes curr ency on hand and demand

de posits

Cash equivalents ar e shor t-ter m, highly liquidinvestments that ar e

Readily conver tible to known amounts of

cash



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O per ating

Activities

Investing

Activities

Financing

Activities

Classification of Cash Receipts &

Cash Payments



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O per ating Activities

Operating activities are the principal revenue-

producing activities of the enterprise .

Tr ansactions that gener ally involve pr oducing anddeliver ing goods and pr oviding ser vices

Inflows

selling goods and ser vices, Recei pts f r om debtor s etc.

Outflows

Pur chase of RM, salar y ex p, Other o per ating ex p.



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Investing Activities

I nvesting activities are the acquisition and disposal

of long-term assets and other investments not

inclu

ded in cash equ

ivalents. Inflows

Selling of fixed assets and mar ketable secur ities,

r eceiving dividend on investments etc.

Outflows

pur chasing fixed assets, mar ketable secur ities etc.



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Financing Activities

F inancing activities are activities that result in

changes in the size and composition of the

owners¶ capital and borrowings of theenterprise.

Inflows

Issuing shar es, debentur es, and long-ter m borr owing

Outflows

Re payment of Long-ter m loans, r edem ption of

Debentur es, payment of dividend & inter est etc.



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Basic Interpr etation of

Statement of Cash Flows Over all, how successf ul has management been in

gener ating and investing cash flows?

How does accrual basis net income com par e with cash basis?

What cash uses have been made for investing activities,

and to what extent has cash f r om o per ations been

sufficient to pay for these investments?

What sour ces and uses have been gener ated f r om

financing activities?



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Dir ect ver sus Indir ect Method for

O per ating Activities

Dir ect shows major classes of gr oss cash

r ecei pts and cash payments

Differ ence is net cash pr ovided by,

used in, o per ating activities

Indir ect star ts with net income (loss) and

adjusts for r evenues and ex penses that did

not cause changes in cash



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Indirect Method of Cash Flow Statement

B) Cash Flows from Investing Activities

Pur chase of Fixed Assets

Pr oceeds f r om sale of Fixed AssetsInter est & Dividend r eceived on

investment out side the business

Net cash from investing activities (B)

Rs.

(XXX)

XXX

XXX

Rs.

XXX



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Indirect Method of Cash Flow Statement

C) Cash flows from Financing activities

Pr oceeds f r om issuance of shar e ca pital

Pr oceeds f r om long-ter m borr owingsRe payment of long-ter m borr owings

Inter est & Dividend paid

Net cash from financing activities (C)

NETCASH FLOW(A+B+C)

Add: Cash and cash equivalents at beginning

of period

Cash and cash equivalents at end of period

Rs.

XXX

XXX

(XXX)

(XXX)

Rs.

XXX

XXX

XXX

xxx



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Direct Method of Cash Flow Statement

A) Cash Flows from Operating Activities

Cash sales

Cash collected f r om customer s/debtor s

Cash pur chases

Cash paid to supplier s/ cr editor s and

em ployees

Cash paid for o per ating ex p. Cash generated from operations

Income Tax paid

Net cash from operating activities (A)

Rs.

XXX

XXX

(XXX)

(XXX)

(XXX)XXX

(XXX)

Rs.

XXX

Cash Flow Statement Ch 5

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