Answer 1

CASH FLOW STATEMENT

As per Accounting standard 3 “Cash Flow Statement”

Cash flow statement states that cash flows should be exclude the movements between item which
forms part of cash or cash equivalents as these are the part of an enterprise cash management
rather than its operating, financing and investing activities.

Companies must prepare and present cash flows from operating, financing, and investing activities in
such manner that is apt to their business. Grouping the activities provide information which enables
the user in assessing the impact of such activities on the overall financial position of an enterprise
and also assess the value of the cash and cash equivalents.

Classification of cash flow statement

Operating activities

Cash flow from operating activities predominantly result from the main revenue generating activities
of an enterprise

Cash flows from operating activities are primarily derived from the main activities of the enterprise.
They generally result from the transactions and other events that enter into the determination of
net profit or loss.

Example

 Cash received from the sale of goods and services

 Cash received in form of fees, royalties, commission and various other revenue forms
 Cash paid to suppliers of goods and services

Investing activities

Cash flows from investing activities represent outflows are made for resources intended for
generating cash flows and future income.

As per AS-3, investing activities are the acquisition and disposal of long-term assets and other
investments not included in cash equivalents. Investing activities relate to purchase and sale of long-
term assets or fixed assets such as machinery, furniture, land and building, etc. Transactions related
to long-term investment are also investing activities. Separate disclosure of cash flows from investing
activities is important because they represent the extent to which expenditures have been made for
resources intended to generate future income and cash flows.

Examples

 Cash paid for acquiring fixed assets

 Cash received from disposal of fixed assets
 Cash paid for acquiring shares, warrants or debts instruments of other companies
 Financing activities

Financing activities are those which bring changes in composition and size of owner capital and
borrowing of an enterprise

financing activities relate to long-term funds or capital of an enterprise, e.g., cash proceeds from
issue of equity shares, debentures, raising long-term bank loans, repayment of bank loan, etc. As
per AS-3, financing activities are activities that result in changes in the size and composition of
the owners’ capital (including preference share capital in case of a company) and borrowings of
the enterprise. Separate disclosure of cash flows arising from financing activities is important
because it is useful in predicting claims on future cash flows by providers of funds ( both capital
and borrowings ) to the enterprise.

Example

 Cash received from issuing shares or other similar securities

 Cash received from issuing loans, debenture, bonds, notes and other short term or long term
borrowings
 Cash repaid on borrowings

Cash flow from operating activities

A company must report its cash flow from operating activities using

 Direct method
 Indirect method

 Direct method

Where all the major classes of cash receipts and cash payments are presented

 Indirect method
Where the net profit or net loss is adjusted for:
o Effects of transactions that are non cash in nature such as depreciation, provisions
etc
o Accruals or deferral of future or past operating cash proceeds or payments
o Any expense or income related to financing or investing cash flows

Cash flow from investing and financing activities

A company must separately record all the major classes or cash receipts and cash payments arise
from the financing and investing activities, barring the ones which need to be reported on basis.

Non cash items

A non cash item is an entry on an income statement or cash flow statement correlating to expenses
that are essentially just accounting entries rather than actual moments of cash

Non operating items

Non operating cash flow is comprised of cash. A company takes in and pays out that comes from
source other than its day to day operations

Example

 Taking out a loan

 Issuing new stock
 Self tender defence

Cash flow statement

For the year ended 31st march 20xx

Cash flow from operations

Cash flow from operating activities ₹

Net profit before tax 2,69,244
Adjustments for:
Loss on sale of assets 95,780
Finance cost paid on debenture 12,000
Depreciation on fixed assets 85,000
Amortization expenses 1,10,000
Gain on sales of investment (45,000)
Interest income (35,000)
Dividend income (26,000)
Cash flow from operating activities 4,66,024

Items classification with logical reasoning

Particulars Type of activity Reason

Loss on sale of asset Operating activity It is a Non operating income
Dividend income Investing activity Dividend income arising due to investment in
shares. It is a Non operating income
Interest income Investing activity interest income arising due to advances . It is a
Non operating income
Finance cost paid on Financing activity Cost occur during issuance to redemption of
debenture debenture. It is a non operating expenses
Gain on sale of Investing activity Gain arising from sale of investment which is not
 investment part of operating activity. It is a Non operating
income
Depreciation on fixed Operating activity Non cash item
assets
Amortization expenses Operating activity Non cash item

Answer 3

Accounting

Accounting is “the art of recording, classifying and summarizing in a significant manner and in terms
of money, transactions and events which are, in part at least, of a financial character and
interpreting the results thereof

Types of accounts

To understand the Golden Rules of Accounting we must first understand the types of accounts. The
account classification applies to all the types of general ledgers. In other words, every account will
fall in one of the broad classifications given below. There are three types of accounts

 Real account
 Personal account
 Nominal account

Real account

A Real Account is a general ledger account relating to Assets and Liabilities other than people
accounts. These are accounts that don’t close at year-end and are carried forward. An example of a
Real Account is a Bank Account.

Rule of debit and credit – debit what comes in, credit what goes out

Personal account

A Personal account is a General ledger account connected to all persons like individuals, firms and
associations. An example of a Personal Account is a Creditor Account.

Rule of debit and credit – Debit the receiver, credit the giver.

Nominal account

A Nominal account is a General ledger account pertaining to all income, expenses, losses and gains.
An example of a Nominal Account is an Interest Account

Rules of debit and credit – debit all expenses and losses, credit all incomes and gains

Particulars Affected accounts Types of account

Started business with cash Cash account Real account
Proprietor capital account Personal account

Purchase goods for cash Purchases account Nominal account

 Cash account Real account

Sold goods to C on credit C’s account Personal account

Sales account Nominal account

Paid salary for cash Cash account Real account

Salary account Nominal account

Deposit cash in bank account Bank account Personal account

Cash account Real account

Accounting golden rules

Based on these two aspects, double entry system or debit and credit rules are formed in each
business transaction. There are two approaches to deciding when to write to the debit side and
when to write to the credit side of an account. In other words, which account is debited and which
account is credited with the rules underlying this decision is called debit. And credit rules

Personal account - Rule of debit and credit – Debit the receiver, credit the giver.

Real account - Rule of debit and credit – debit what comes in, credit what goes out

Nominal account - Rules of debit and credit – debit all expenses and losses, credit all incomes and
gains.

Date Particulars L. Dr. Cr.

F
1 Cash A/c 150000
Dr. 150000
To Akbar capital A/c
(cash introduced Rs 150000 )
2 Purchase A/c 25000
Dr. 25000
To Cash A/c
(purchase goods for cash 25000)
3 C’s A/c 20000
Dr. 20000
To sales A/c
(sales goods to debtor on 20000)
4 Salary A/c 15000
Dr. 15000
To Cash A/c
(salary paid 15000 )
5 Bank A/c c 100000
Dr. 100000
To cash A/c
(cash deposited 100000)