CASH FLOW STATEMENT

CASH FLOW STATEMENT

BY CHERANJIT DAS

Definition

As per AS3 (Revised) Cash Flow Statement is a summary of cash receipts and payments during an accounting period.

It is prepared to explain movements of cash

between two points of time (generally two

balance sheet dates)

CLASSIFICATION OF CASH FLOW ACTIVITIES

As per AS3 cash flows during a period are classified as:

1. Operating Activities

2. Investing Activities

3. Financing Activities

Cash Flows from Operating Activities

 These are the principal revenue generating activities of an enterprise.

 Method of Calculation :

1.

Direct Method

2.

Indirect method

Direct method for Calculation of Cash Flows from Operating Activities

Step 1 : Calculate amount received from

customers and paid to suppliers by preparing Sundry Debtors and Sundry Creditors Account.

Step 2 : Calculate Amount paid to employees and other operating expenses (i.e. Wages, Salaries, Rent Paid Etc.)

Step 3 : Sum of Step 1 and 2 is called “Cash Generated from Operation”

Step 4 : Deduct Income tax paid to get cash flow before extraordinary items.

Step 4 : Add any extraordinary receipts to get

“Net Cash from operating Activities”.

Particulars Amount

Rs. Amoun

tRs.

Cash Flows from Operating Activities : Cash receipt from Customers

Cash paid to suppliers Cash paid to employees

Cash Generated from Operation Income Tax Paid

Cash Flow before extraordinary items Proceeds from earthquake disaster settlement etc.

Net Cash from Operating Activities

XXXXX (XXXX) (XXXX) XXXXXX (XXXXX) XXXXXX XXXXXX

XXXXX X

 Necessary Accounts to be prepared : (WORKING)

Dr.

Sundry Debtors A/c Cr.

XXX

(Opening Balance)

To Sales A/c XXX

(Credit Sales)

By Cash A/c XXX

(Received from Debtors : Balancing fig. )

By Balance c/d XXX

(Closing Balance)

Dr. Sundry Creditors A/c Cr.

XXX

(Payment to Creditors:

Balancing fig. )

To Balance c/d XXX

(Closing Balance)

By Balance b/d XXX

(Opening Balance)

By Purchase A/c XXX (Credit Purchase)

Dr. Provision for Tax A/c Cr.

To Bank A/c XXX By Balance c/d XXX

(Income tax paid : take opening balance if the figure is not provided )

By P/L A/c

( Provision for tax) XXX

To Balance c/d XXX

Indirect method For Calculation of Cash Flows from Operating Activities

Step 1 : Calculate “Operating Profit before Working Capital Changes” by preparing

Memorandum Profit & loss A/c Step 2 : Adjustment for :

1. Add Decrease in Current Assets 2. Less Increase in Current Assets

3. Add Increase in Current Liabilities 4. Less decrease in Current Liabilities

We get Cash generated from Operation. Rest

same as direct method

Particulars Amount

Rs. Amount

Rs.

Cash Flows from Operating Activities : Operating Profit before Working Capital

changes XXXXXX

Adjustment For :

Decrease in Current Assets ( Except Cash and Bank)

XXXXXX Increase in Current Assets (Except Cash

and Bank) (XXXXX)

Increase in Current Liabilities XXXXXX Decrease in Current Liabilities (XXXXX)

Cash Generated from Operation XXXXXXX

Income Tax Paid (XXXXXX)

Cash Flow before extraordinary items XXXXXXX Proceeds from earthquake disaster

settlement etc. XXXXXXX

Net Cash from Operating Activities XXXXXX

 Necessary Accounts to be prepared : (WORKING)

Dr.

Memorandum Profit & Loss A/c Cr.

XXX By Balance b/d XXX

To proposed Dividend XXX

By Interest Received XXX

To Provision for Tax

XXX By Dividend Received

XXX

(Other than pre acquisition Dividend)

To Loss on Sale of Fixed Assets/Investment XXX

By Profit on sale of fixed

Asset/ Investment XXX

To Interest on Debenture

XXX By other non operating or

non cash incomes To Foreign Exchange Loss

XXX

To other non operating or

Non cash expenses By Operating Profit before Working Capital

changes XXX

To Balance c/d XXX

Cash Flows from Investing Activities

 These are the acquisition and disposal of long term assets and other investments not

included in cash equivalents.

Calculation of Cash Flows from Investing Activities

Particulars Amoun

t Rs.

Amoun t

Rs.

Cash Flows from Investing Activities :

Sale proceeds of fixed assets XXXX

Sale Proceeds of Investments XXXX

Purchase of Fixed Assets (XXX)

Purchase of Investments (XXX)

Interest Received XXXX

Dividend Received ( Including pre-acquisition dividend)

XXXX

Net Cash from Investing Activities XXXXX

 Necessary Accounts to be prepared : (WORKING)

Dr.

Fixed Assets A/c

Cr.

(Purchase of fixed assets)

By P/L A/c XXX

To P/L A/c

(Profit on sale of fixed assets)

XXX (Loss on sale of fixed assets)

By Depreciation OR P/L A/c

( Depreciation charged)

XXX

By Balance c/d XXX

Dr. Investments A/c Cr.

Dr. Dividend/Interest on Investment A/c Cr.

To Balance b/d XXX By Bank A/c XXX

To Bank A/c XXX (Sale of investment) (purchase of investment) XXX By Pre-Acquisition

Dividend XXX

To P/L A/c XXX By P/L A/c XXX

(Profit on sale of investment)

(Loss on sale of investment)

By Balance c/d XXX

To P/L A/c

(Dividend charged to P/l A/c)

XXX By Bank A/c

(Dividend Received on investment)

XXX

Dr. Pre-Acquisition Dividend A/c Cr.

NB : Note the difference at the debit side of dividend and pre-acquisition dividend a/c.

To Investment A/c XXX By Bank A/c XXX

(Pre-acquisition dividend received)

Cash Flows from Financing Activities

These are the activities that result in change in

the size and composition of the owner’s capital

( including pref. share capital) and borrowings

of the enterprise

Particulars Amoun tRS.

Amou ntRs.

Cash Flows From Financing Activities :

Issue of Equity Shares ( Difference in op. and cl.

Balance) XXX

Issue of Pref. Shares ( Difference in op. and cl.

Balance)

XXX Issue of Debenture ( Difference in Op. and cl.

Balance) XXX

Redemption of Pref. shares ( Difference in Op.

and cl. Balance)

(XXX)

Redemption of Debenture ( Difference in Op. and cl. Balance)

(XXX)

Dividend paid ( proposed dividend a/c) (XXX)

Interest Paid (XXX)

Loan Repaid (XXX)

Net Cash from Financing Activities XXX

Necessary Accounts to be Prepared : (WORKING)

Dr.

Proposed Dividend A/c

Dr.

X By Balance b/d XXX

(Dividend paid : take the opening balance if the amount is not provided)

By P/L A/c

( Proposed dividend : balancing fig OR the figure provided if any)

XXX

To Balance c/d XX

X

In the Books of …………

Cash Flow Statement

For the year ended … (As per AS3)

Pariculars Amoun

t Rs.

Amount Rs.

Cash Flows from Operating Activities (A) XXX Cash Flows from Investing Activities (B) XXX Cash Flows from Financing Activities (C) XXX

Net increase/ decrease in cash and cash equivalents

(A+B+C)

XXX

Cash and cash equivalents at the beginning of the period

XXX Cash and cash equivalents at the end of the

period XXX

Tips:

1. First make all the accounts and then start your cash flow statement.

2. Always see carefully preliminary expenses, provision for taxation and proposed dividend :

1.

preliminary expenses : if amount decreased charge to memorandum p/l a/c. (To)

2.

Provision for taxation : If nothing said opening amount is tax paid and closing amount is current year’s provision, charge to p/l (To)

3.

Proposed Dividend : if nothing said opening

amount is dividend paid and closing amount is

proposed dividend, charge it to memorandum p/l

a/c (To)