CASH FLOW STATEMENT
CASH FLOW STATEMENT is a report that gives the movement of cash during the period under consideration. It gives an idea about the inflow and outflow of cash from operating, investing and financing activities.
It is a statement showing inflows (receipts) and outflows (payments) of cash during a particular period.
The term cash here stands for cash & cash equivalent.
It is also known as statement of changes in financial position.
For past- cash flow, for future – cash budget.
Cash flow statement prepared at the end of the year.
It is useful for short term financial planning.
Three activities are included in this-
1) operating activities
2) investing activities
3) financing activities.
READ ALSO:- RATIO ANALYSIS
OPERATING ACTIVITIES
It refers to the main activities of a business of purchase or sale of goods, providing of services, etc. For Ex.: Purchase or sale of goods, trading P/L expenses, depreciation, etc.
INVESTING ACTIVITIES
It shows the investment a business does in either a property, security or particular asset, etc. For Ex.: purchase/sale of a building, purchase of investment, etc. an
FINANCING ACTIVITIES
When a business needs of finance, it looks for various sources like raising funds through shares or debts, etc. Fort Ex: Issuance of equity or preference shares, redemption of the same, payment of dividend, etc.
There is a possibility of window dressing in cash flow statement so fund flow statement presents a more realistic picture than a cash flow statement.
It ignores the accrual concept It is of historical nature
Format of cash flow statement (AS-3)
1) CASH FLOW FROM OPERATING ACTIVITIES
Net profit before tax& extraordinary items
Adjustment for depreciation, foreign exchange, loss on sale of fixed assets, gain on sale of fixed assets,interest paid,interest received, dividend received.
Operating profit before working capital changes- ADD (+) decrease in current assets, increase in current liabilities. Sub (-) Increase in current assets, decrease in current liabilities.
Cash generated from operating activities, Income tax paid
Net cash from operating activities.
2) CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets
Purchase of fixed assets
Purchase of Investment
Sale of Investment
Interest received
Dividend received
Net cash from investing activities
3) CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issue of share capital
Proceeds from long term borrowings
Repayment of long term borrowings
Interest paid
Dividend paid
Net cash from financing activities
FUND FLOW STATEMENT
Depicts various sources of funds & their uses.
ADD (+) Increase in liability, Decrease in assets. SUB (-) Decrease in liability, increase in assets.
Statement of change in financial position 1) working capital basis i.e. fund flow statement. 2) cash basis i.e. cash flow statement
Net working capital = current assets – current liabilities
Fund flow statement shows the sources & uses of working capital between two balance sheet dates.
Fund flow statement is a historical record of where the funds came from & how these were utilized during the period.
When the net effect of a transactions is to increase or decrease the working capital by affecting any elements of current assets or current liability affect one current account & one non- current account.
Working capital increase when increase in current assets/ decrease in current liability
Working capital decrease when increase in current liabilities, decrease in current assets.
Long term planning
Based on accrual basis.
Steps in Fund flow statement
1) Change in working capital
2) Fund from operations
3) Sources of fund includes
Fund from operations
Issue of share capital
Issue of debentures
Long term borrowings
Sales of assets / investment
Non-operating income
Profit
Decrease in working capital
4) Application of fund
Loss from operations
Redemption of share capital
Redemption of debenture
Repayment of loan
Purchase of asset/ investment
Payment of dividend
Loss
Increase in working capital.
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