CASH FLOW STATEMENT

Cash plays a very important role in the economic life of a

business. Cash is generated from operating activities and by
the issue of shares and debentures or loans. It is mandatory
for all listed companies to prepare and present a cash flow
statement along with other financial statements on annual
basis. Cash flow statement is used to analysis the
movement of cash.
Meaning of Cash Flows
Cash means, cash in hand and demand deposits with
the bank. Cash equivalent consists of bank overdraft, cash
credit, short term deposits and marketable securities. Cash
flow means movement of cash. It may be cash inflows or
outflows. Transactions which increase the cash position of
the entity are called as inflows of cash and those which
decrease the cash position as outflows of cash.
Meaning and Definition of Cash Flow Statement
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. Cash-Flow statement may be
defined as “a summary of receipts and disbursements of
cash for a particular period of time. It also explains reasons
for the changes in cash position of the firm”.
Objectives of Cash Flow Statement
Self Notes
Categories of Cash Flows
a. Cash Flows from Operating Activities
Operating Activities are the principal revenue generating
activities of the enterprise. They generally result from the
transactions and other events that enter into the
determination of net profit or loss. Examples of cash flows
from operating activities are given below.
Cash Inflows
 Cash revenue from sale of goods and the rendering of
services.
 Cash revenue from royalties, fees, commissions etc.
Cash Outflows
 Cash payments to suppliers for goods and services.
 Cash payments to and on behalf of the employees.
 Cash payments of insurance premium.
 Cash payments or refunds of income taxes.
b.Cash Flows from Investing Activities
Investing activities include the acquisition and disposal
of non-current assets and other investments not included in
cash equivalents. Examples of cash flows from operating
activities are given below.
Outflows
 Cash payments to acquire non- current assets.
 Cash payments to acquire shares warrants or debt
instruments of other enterprises.
 Cash advances and loans made to third party.
Inflows
  Cash receipt from disposal of non-current assets
including intangibles.
 Cash receipt from the repayment of advances.
 Cash receipt from disposal of shares, warrants or debt
instruments of other enterprises.
 Interest received in cash from loans and advances.
 Dividend received from investments in other
enterprises.
c. Cash Flows from Financing Activities
Financing activities are activities that result in change in
the size and composition of the owner’s capital (including
Preference share capital in the case of a company) and
borrowings of the enterprise. Examples of cash flows from
financing activities are given below.
Outflows
 Cash proceeds from issuing shares or other similar
instruments.
 Cash proceeds from issuing debentures, loans, bonds
and other short or long-term borrowings.
Outflows
 Cash repayments of amounts borrowed.
 Interest paid on loans, debentures and advances.
 Dividends paid on equity and preference capital.