CASH FLOW STATEMENT

Cash Flow Statement –

It is a statement showing inflows (receipts) and outflows (payments) of cash during a
particular period. It analyses the reasons for changes in balance of cash between the
two balance sheet dates.
A cash-flow statement includes only those items which effect cash. It can be for the past
or can be projected for a future period.
Objects or Importance –
1. Useful for Short –Term Financial Planning
2. Useful in Preparing the Cash Budget
3. Comparison with the Cash Budget
4. Study of the Trend of Cash Receipts and Payments
5. Helpful in making Dividend Decisions
6. Helpful in Ascertaining Cash Flow from Various Activities Separately

CASH FLOW STATEMENTS (CFS)

FORMAT - INDIRECT METHOD
Cash Flow Statement
For the year ended…..
Particulars Rs. Rs.
1. Cash Flow from Operating Activities
A. Net profit before taxation and extraordinary items
B. Add: Items to be added
 Depreciation
 Preliminary expenses written off
 Discount on issue of shares and debentures
written off
 Goodwill written off
 Patents and Trademarks written off
  Interest on Borrowings and Debentures
(only for non-finance companies to be shown –
under Financial Activities)
 Loss on Sale of Fixed Assets
C. Less: Items to be Deducted
 Interest Income (only for non-finance
companies to be shown under Investment
Activities)
 Dividend Income (for non-finance companies
to be shown under investment activities)
 Rental Income
 Profit on Sale of Fixed Assets (to be shown
under Investment Activities – Sale Price)
Operating Profit before Working Capital
Charges Operating Profit before working
capital charges
D. Operating Profit before Working Capital Changes
(A+B-C)
E. Add: Decrease in Current Assets and Increase in
Current Liabilities Detail:
 Decrease in Stock/Inventories
 Decease in Debtors/B/R
 Decrease in Accrued Incomes
 Decrease in Prepaid Expenses
 Increase in Creditors/B/P
 Increase in Outstanding Expenses
 Increase in Advance Income
 Increase in Provision for Doubtful Debt
F. Less: Increase in Current Assets and Decrease in
Current Liabilities
 Increase in Stock/inventories
 Increase in Debtors/B/R
 Increase in Accrued Incomes
 Increase in Prepaid Expenses
 Decrease in Creditors/B/P
 Decrease in Outstanding Expenses
 Decrease in Advanced Income
 Decrease in Provision for Doubtful Debt
G. Cash Generated from Operations (D+E-F)
H. Less: Income Tax Paid
I. Cash Flow before extraordinary items, extraordinary
items (+/-)
J. Net Cash from (or used in) Operating Activities
2. Cash Flow from Investing Activities
 Proceeds from Sale of Fixed Assets
  Proceeds from Sale of Investments
 Proceeds from Sale of Intangible Assets
 Interest and Dividend Received (for non-finance
companies only)
 Rent Income
 Purchase of Fixed Assets
 Purchase of Investments
 Purchase of Intangible Assets, e.g. Goodwill
 Extraordinary Items (+/-)
Net Cash from (or used in) Investing Activities
3. Cash Flow from Financing Activities
 Proceeds from Issue of Shares and Debentures
 Proceeds from other Long-Term Borrowings
 Final Dividend paid
 Interim Dividend paid
 Interest on Loans and Debentures
 Repayment of loans
 Redemption of Debentures/Preference Shares
 Extraordinary Items (=/-)
Net Cash from (or used in) Financing Activities
4. Net Increase/Decrease in Cash and Cash Equivalents
(1+2+3)
5. Cash and Cash Equivalents in the beginning of the
year
 Cash in hand
 Cash at Bank (less: O/D)
 Short-term Deposits
 Marketable Securities
6. Cash and Cash Equivalents at the end of the year
 Cash in hand
 Cash at Bank (less:O/D)
 Short-Term Deposits
 Marketable Securities

CASES/ PROBLEMS

Q1. Manu Company entered into the following transactions.

a) Collected installment payments for the sale of inventories.- Op Activity
b) Paid income tax - op
c) Entered into a hire purchase for a new plant.- Non cash activity
d) Purchased goods for cash – Operating act.
e) Issued debentures- Finance act.
f) Paid a dividend- Finance
g) Received interest on investment in Treasury bill- Investing activities
h) Sold a plant in exchange for shares- Non cash activity
i) Made a two-year loan to a subsidiary- Investment Activity
j) Paid principal amounts of price for instalment purchase of plant- Financing act.
k) Converted long-term loan into equity shares- Non cash activities
l) Transferred cash to a six-month deposit account- None of the above
m) Sold machinery at a loss- Investment act.
n) Exchange a building for a plant – None of the above
o) Repaid bank overdraft- Financing activity
p) Retired a plant from use.- None of the above
q) Sold goods for cash- Operating act.
r) Issued shares at par- Financing act.
s) Sold patents at a gain – Investment act
t) Made a down payments for the purchase of plant- Investment act.
Required
1. Classify each as an operating activity, investing activity, financing activity, non-
cash activity, or none of the above.

2. Classify each as an operating activity, investing activity, financing activity, non-

cash activity, or none of the above

a. Cash Paid to suppliers and employees-

b. Proceeds from Sale of Plant and Machinery-
c. Repayment of Unsecured Loan-
d. Interest Received-
e. Interest Paid-
f. Converted secured debentures of Rs. 20000 to equity shares of Rs. 10 at par-
g. Redeemed secured debentures at Par-
h. Deposited Cash in Current account-
i. Paid Bonus to employees-
j. Acquired equipment on credit-
k. Paid cash on Maturity of bills payable-
l. Paid cash to settle a suit for trademark infringement-
m. Purchased a 60 day certificate of deposit-
n. Written off a receivable when a customer became insolvent-
o. Received Cash on Maturity of Bills receivable-