AS 3: CASH FLOW STATEMENT

STUDENT
NOTES
FINANCIAL STATEMENTS

Statements Statements
Notes to Balance Cash Flow
of Profit & of Changes
Accounts Sheet Statement
Loss in Equity

Assets/
Cash flow
Profit/Loss Liabilities
for the
for the year position as
entire year
on year end

Why Cash Flow Statement is Important?

Cash Inflow = 1,00,000 Cash Outflow = 1,50,000

Is this a good sign or a bad sign for the company??

CASE 1

Daily Business Operations Bank Loan Repay

CASE 2

Sale on Investments Incremental Salary

 AS 3: CASH FLOW STATEMENT

STUDENT
WHAT IS THE MEANING OF CASH FLOW NOTES
Answer: Inflow and Outflow of Cash and Cash Equivalents is cash flow.

Cash Received Cash Paid

Inflow of Cash Outflow of Cash

DEBTOR CREDITOR
BUSINESS

Cash Cash
Deposit Withdrawn

Neither Cash Inflow Nor Cash Outflow

MUN MUN BANK

Any Movement between cash and cash equivalents does not results in cash
-
- -
-

flow. This is Called Cash Management.

-
-

B
CASH AND CASH EQUIVALENTS : -
-

1) Cash in hand LICE - (22E

2) Cash deposited with bank (demand deposit) current
cast
-
Saving
&
Current Cash management
account account
deposit deposit
➢ This does not include fixed deposits/recurring deposits.
* ➢ Bank overdraft if payable on demand then it is included in cash & cash
= Otherwise, it will be considered a part of financing activity.
- -
- - -

equivalents. =
-
- -
- - -

3) Short Term highly liquid investments, where there is insignificant risk of

change in value of investments.
➢ Short Term = Realizable within 3 months from date of acquisition.
➢ E.g. : Government Bonds, Treasury Bills.
 AS 3: CASH FLOW STATEMENT

STUDENT
How do we classify Cash Flow in the Cash Flow Statement NOTES

Cash Flow from Operating Cash Flow from Cash Flow from
Activity Investing Activity Financing Activity

➢ Receipt from ➢ Purchase/Sale of ➢ Issue of Share

Customer Machine Capital
➢ Cash Sales ➢ Purchase/Sale of Land ➢ Redemption of
➢ Payment to Supplier ➢ Purchase/Sale of Share Capital
➢ Cash Purchases Building ➢ Issue of Debentures
➢ Payment of ➢ Investment in Shares ➢ Redemption of
Salary/Wages ➢ Investment in Debentures
➢ Payment of Debentures. ➢ Bank Loan raised
telephone bill. ➢ Bank Loan repaid.

Business: Pen Business: Finance

Transaction
Manufacturing Company (Bank)
1) Interest Received Investing Activity Operating Activity
2) Dividend Received Investing Activity Operating Activity
3) Interest Paid Financing Activity Operating Activity
4) Dividend Paid Financing Activity Financing Activity

BALANCE SHEET
Liabilities = Sources of Assets = Application of
Classified As Classified As
funds funds
Share Capital Issued PPE
Investing
Debentures Issued Intangible Assets
Financing Activity
Bank Loan Raised Activity Non-Current Investments
Investing
Public Deposits Short Term Investment
Activity
Financing
Short Term Loan Stock
Activity
Creditors Debtors Operating
Bills Payable Operating Bills Receivable Activity
Activities
Outstanding Expenses Prepaid Expenses
 AS 3: CASH FLOW STATEMENT

STUDENT
NOTES
METHODS OF PREPARATION OF CASH FLOW STATEMENT

INDIRECT METHOD DIRECT METHOD

METHOD 1 : INDIRECT METHOD

TRADING A/C AND PROFIT & LOSS A/C

TRADING A/C
Particulars Classified As Particulars Classified As
Opening Stock Sales
Purchases Operating Activity Closing Stock Operating Activity
Direct Expenses
Gross Profit XXX
P&L A/C
Gross Profit XXX
OPERATING EXPENSES
Advertisement Operating Exp. Operating Incomes
Salary (Business Related)
Internet Bill ( Day - Day
Telephone Bill Business Activities)
Depreciation
Operating Profit
OPERATING PROFIT
NON-OPERATING EXPENSES NON-OPERATING INCOMES
Non-Operating Exp. Interest on Non-Operating Inc..
Interest on bank Loan
(Business Related) ( Debentures (Business Related)
Interest on Debentures But not related to Dividend on Shares (But not related to
Loss on sale of Day - Day Business Day - Day Business
Gain on sale of Land
Machinery Activities) Activities)
EXTRAORDINARY EXPENSES EXTRAORDINARY INCOMES
Extraordinary Exp. -Insurance claim Extraordinary Inc.
Loss due to Fire
(Not Related to due to Fire (Not Related to
Business) - Insurance claim for Business)
Loss due to Earthquake
Theft
 AS 3: CASH FLOW STATEMENT

STUDENT
NOTES
+ Net Profit Before Tax XXX
Less: Income Tax
XXX
Expense
Net Profit After Tax XXX

Net Profit After Tax

Appropriations

Transfer to Proposed Retained in

Reserves Dividend P&L
 AS 3: CASH FLOW STATEMENT

STUDENT
Format of Cash Flow From Operating Activities: Indirect Method
NOTES
Net Profit before Tax XXX
Add : Extraordinary Expenses XXX
Less : Extraordinary Incomes (XXX)
Net Profit Before Tax and Extraordinary Items XXX
Add : Non-Operating Expenses XXX
Less : Non-Operating Incomes (XXX)
Operating Profit - XXX
-> Add :Operating Non-Cash Expenses XXX
Operating Profit before Working Capital Changes XXX
0 Less : Increase in Current Assets (XXX)
⑧
>

Add : Decrease in Current Assets XXX

O Add : Increase in Current Liabilities XXX
⑧
-
-

Less : Decrease in Current Liabilities (XXX)

Cash Flow from Operations ↓ XXX
Less : Income Tax Paid (XXX)
Less : Extraordinary Expenses Paid (XXX)
Add : Extraordinary Incomes Received XXX
Cash Flow from Operating Activities XXX

How to Arrive From Operating Profit to Operating Cash Flow

0
Increase Increase in
Profit
1 Crore
Depreciation
50 Lakhs ⑧
Y
Debtors
20 Lakhs
Creditors
30 Lakhs
100
-
SOO
0Cash
Flow
-

g
=
t
=
=
-

100 99
E

~
Operating
Profit
Operating
Non-Cash
- Increase in
CA
+ Increase in
CL
Operating
~
-
Cash Flow
Exp. + Decrease in - Decrease in
CA CL

Amortization Preliminary Exp. written off

 AS 3: CASH FLOW STATEMENT

STUDENT
Format For Cash Flow From Investing Activities
NOTES
Purchase of Machine (XXX)
Sale of Machine XXX
Purchase of Land (XXX)
Sale of Land XXX
Interest Received XXX
Dividend Received XXX
Cash flow from Investing Activities XXX

Format for Cash Flow From Investing Activities

Proceed from Issue of Share Capital XXX
Share Capital Bought back / Redeemed (XXX)
Proceed from Issue of Debentures XXX
Debentures Redeemed (XXX)
Bank Loan Raised XXX
Bank Loan Repaid (XXX)
Interest Paid (XXX)
Dividend Paid (XXX)
Cash Flow from Financing Activities XXX

Cash Generated / (Used) during the year (I + II + III) XXX

Opening Cash & Cash Equivalents XXX
Closing Cash & Cash Equivalents XXX
 AS 3: CASH FLOW STATEMENT

STUDENT
METHOD 2 : DIRECT METHOD NOTES

CASH FLOW FROM OPERATING ACTIVITY

1) PURCHASES 2) PROCESSING 3) SALES

1) Purchases of Raw Material 3) Sale of Finished Goods

Cash Purchases Credit Purchases Cash Sales Credit sales

Cash Outflow Payment to Cash Inflow Receipt from

Suppliers Customers

Cash Outflow Cash Inflow

2) Processing

Direct Expenses Indirect Expenses

Wages Power & Loading & Transit

Lighting Unloading Insurance

Advertisement Internet Bill Telephone Selling

Bill Expenses
 AS 3: CASH FLOW STATEMENT

STUDENT
Format of Cash Flow From Operating Activities: Direct Method
NOTES
Particulars Amount
Cash Sales and Receipt from Customers XXX
Less : Cash Purchases and Payment to Suppliers (XXX)
Less : Operating Expenses Paid (XXX)
Cash Flow from Operation XXX
Less : Income Tax Paid (XXX)
Cash Flow from Operating Activities XXX

Note: Under Direct Method, Cash flow from Investing and Financing activity
remains the same.