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Sybba Cash Flow - Dr. S.M. Vohra

The document provides an introduction to cash flow statements including their purpose and how they are classified. It discusses key concepts like cash, cash equivalents, and activities. It also outlines the steps to prepare a cash flow statement.

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44 views14 pages

Sybba Cash Flow - Dr. S.M. Vohra

The document provides an introduction to cash flow statements including their purpose and how they are classified. It discusses key concepts like cash, cash equivalents, and activities. It also outlines the steps to prepare a cash flow statement.

Uploaded by

gankitrauniyar123
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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A Presentation

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INTRODUCTION TO
CASH FLOW STATEMENT
AT
S.Y.B.B.A (SEMESTER – III)
B.J.V.M. COMMERCE COLLEGE

PRESENTED BY
Dr. Samir M. Vohra
Assistant Professor
B.J.V.M. Commerce College
Vallabh Vidyanagar
INTRODUCTION
• Till now you have learnt about the financial statements
being primarily inclusive of Position Statement
(showing the financial position of an enterprise as on a
particular date) and Income Statement (showing the
result of the operational activities of an enterprise over
a particular period).
• There is also a third important financial statement
known as Cash flow statement, which shows inflows
and outflows of the cash and cash equivalents.
• This statement is usually prepared by companies
which comes as a tool in the hands of users of
financial information to know about the sources and
uses of cash and cash equivalents of an enterprise
over a period of time from various activities of an
enterprise.
COMPANIES ACT 2013
• Financial Statement of companies are prepared
following the accounting standards prescribed in
the companies Act, 2013.
• Accounting Standards are notified under section 133
of the Companies Act, 2013 vide Accounting
Standards Rules, 2006 and are mandatory in nature.
• Companies Act, 2013 also specifies that if the
accounting standards are not followed, financial
statements will not be true and fair, which is a quality
of financial statement.
• Financial Statements are defined in Companies Act,
2013 (Section 2 (40)] and includes Cash Flow
Statement prepared in accordance with Accounting
Standard- 3 (AS-3)- Cash Flow Statement
OBJECTIVES OF CASH FLOW STATEMENT
• A Cash flow statement shows inflow and outflow of cash
and cash equivalents from various activities of a
company during a specific period.
• The primary objective of cash flow statement is to
provide useful information about cash flows (inflows and
outflows) of an enterprise during a particular period
under various heads, i.e., operating activities, investing
activities and financing activities.
• This information is useful in providing users of financial
statements with a basis to assess the ability of the
enterprise to generate cash and cash equivalents and
the needs of the enterprise to utilize those cash flows.
• The economic decisions that are taken by users require
an evaluation of the ability of an enterprise to generate
cash and cash equivalents and the timing and certainty
of their generation.
INTRODUCTION
• A cash flow statement provides information
about the historical changes in cash and
cash equivalents of an enterprise by
classifying cash flows into operating,
investing and financing activities.
• It requires that an enterprise should
prepare a cash flow statement and should
present it for each accounting period for
which financial statements are presented.
MEANING OF CASH FLOW
• The cash flow statement is usually prepared
using cash and cash equivalents as its basis.
• Cash equivalents are short-term, highly liquid
investments that are both
1. readily convertible to known amounts of
cash, and
2. so near to their maturity that their
market value is relatively insensitive to changes
in interest rates.
DEFINITION
• “A statement of change in financial
position of a firm on cash basis is
called a cash flow statement”
• The cash flow statement describes
the inflows (sources) & outflow
(uses) of cash. It summarises the
Cause of changes in cash position
of a business enterprise between
two balance sheets.
PURPOSE OF THE CASH FLOW STATEMENT

• The primary purpose of the cash flow


statement is to provide information about
the cash receipts and cash payments of an
entity during a period.

• A secondary objective is to provide


information about its
– Operating activities
– Investing activities
– Financing activities
CLASSIFICATION OF ACTIVITIES
These activities are to be classified into three
categories:
(1) Operating,
(2) Investing, and
(3) Financing Activities
• so as to show separately the cash flows
generated (or used) by (in) these activities.
• This helps the users of cash flow statement to
assess the impact of these activities on the
financial position of an enterprise and so also
on its cash and cash equivalents.
CLASSIFICATION OF CASH INFLOWS AND CASH
OUTFLOWS ACTIVITIES
CONCEPTS
1. Cash comprises cash on hand and demand deposits with banks.
2. Cash equivalents are short term, highly liquid investments that
are readily convertible into known amounts of cash and which are
subject to an insignificant risk of changes in value.
3 Cash flows are inflows and outflows of cash and cash equivalents.
4 Operating activities are the principal revenue-producing activities
of the enterprise and other activities that are not investing or
financing activities.
5 Investing activities are the acquisition and disposal of long-term
assets and other investments not included in cash equivalents.
6 Financing activities are activities that result in changes in the
size and composition of the owners’ capital (including preference
share capital in the case of a company) and borrowings of the
enterprise.
PREPARING THE CASH FLOW STATEMENT
The cash flow statement is prepared differently
from the three other basic financial statements.
1. It is not prepared from the adjusted trial
balance.
2. The cash flow statement deals with cash
receipts and payments, so the accrual
concept is not used in the preparation of this
statement.
The information to prepare this statement usually
comes from three sources:
1. Comparative balance sheet
2. Current income statement
3. Additional information
THREE MAJOR STEPS IN
PREPARING THE FUND FLOW STATEMENT
Step 1: Determine the net increase (decrease) in cash.
The difference between the beginning and ending cash
balances can be easily calculated from comparative
balance sheets.
Step 2: Determine net cash provided (used) by operating
activities.
This step involves analysing not only the current year’s
income statement but also comparative balance sheets
and selected additional data.
Step 3: Determine net cash provided (used) by investing
and financing activities.
This step involves analysing comparative balance
sheet data and selected additional information for
their effects on cash.
THANK YOU

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