REPORTING OF

CASH FLOW
STATEMENT
JECOB KONWAR
LECTURER
DHSK COMMERCE COLLEGE
 CASH FLOW STATEMENT
This statement helps to show the flow
of incoming and out going cash

i.e.

It helps to determine the ability of an

enterprise to generate cash and to
utilise the cash
A cash flow statement may be defined as a
summary of receipts and payments,
reconciling the opening cash (cash and cash
equivalents) balance with the closing
balance of a given period with information
about the sources (inflow) and application
(outflow) from items appearing in the
balance sheet and the P/L a/c of the
enterprise.
 As per AS- 3
CASH FLOWS = inflows and outflows of cash
and cash equivalent
i.e. Historical changes that have taken place in
the cash and bank accounts of the business.
CASH = cash in hand and demand deposits with
bank.
CASH EQUIVALENT = short term, highly
liquid investments that are readily convertible
into known amount of cash and which are
subject to an insignificant risk of changes in
value.
Cash at the beginning = xxxx
(+) Cash receipts = xxxx
(- ) Cash payments = xxxx
----------------------------------------------------------
--
Cash at the end of the period = xxxxx
Format of cash flow statement =
Cash flows from Operating activities =xxxx
Cash flows from Investing activities =xxxx
Cash flows from Financing activities =xxxx
----------------------------------------------------------
Net cash movement for the year = xxxxx
(+) Cash at the beginning of the yr = xxxx
----------------------------------------------------------
Cash at the end of the year = xxxxxx
----------------------------------------------------------
Where, Cash flows = inflows/ outflows
Operating Activities:-
It is a Principal revenue producing activities
of the enterprises other than investing and
financing activities.
 Investing Activities:-
It includes transactions and events that
involve the purchase and sale of long-
term productive assets (machinery,
land, building, etc.) not held for resale
and other investments.
 Financing Activities:-
It involves activities that results in
changes in the size and composition
of the owners’ capital and borrowings
of the enterprise
( including preference share capital).
 Operating Activities:-
INFLOWS
 Cash sales.
 Royalties, fees, commission and
other revenue.
 Receipts for premiums and claims,
annuities & other policy.
 Refund of income tax.
 Receipts relating to futures,
forwards, options, swaps contracts
when held for dealing or trading
purpose.
 Interest received .
OUTFLOWS
 Suppliers for goods/ services.
 Payment to and on behalf of
employees.
 Payments against premium and
claims, annuities & other policy.
 Income tax (unless specified under
investing or financing activities).
 Payments relating to futures,
forwards, options, swaps contracts
when held for dealing or trading
purpose.
 Interest paid ( working capital loan
or to finance operating activities).
 Investing Activities:-
INFLOWS
 Sale of Fixed Assets (including
intangibles).
 Sale of investments, shares, warrants
or debt instruments of other
enterprises and interest in joint
ventures (other than those involved
in trading activities).
 Loans and advances from third
parties (other than of a financial
enterprise).
 Receipts relating to futures,
forwards, options, swaps contracts
except held for trading or classified
as financing activities.
 Interest / dividend received .
OUTFLOWS
 Purchase of Fixed Assets (including
intangibles).
 Payment for capitalized R&D cost.
 Purchase of investments, shares,
warrants or debt instruments of other
enterprises and interest in joint
ventures (other than those held for
trading purpose).
 Loans and advances from third
parties (other than transactions made
by a financial enterprise).
 Payments relating to futures,
forwards, options, swaps contracts
except held for trading or classified
as financing activities.
 Financing Activities:-
INFLOWS OUTFLOWS

 Issue of shares in cash.  Payment of loans.

 Issue of debentures, loan- notes,
bonds and other short term
borrowing in cash.
 Proceeds from long – term
borrowings.
 Redemption of preference shares.
 Repayment of finance / lease
liability.
 Interest paid.
 Payment of dividend.
Method of ascertaining cash flow from
Operating activities :-

DIRECT METHOD:- INDIRECT

METHOD:-
In this method gross
receipts and In this method, the P/L
payments of cash are a/c is adjusted for the
disclosed. effects of
transactions of non-
cash nature.
 DIRECT METHOD:-
CASH FLOW FROM OPERATING ACTIVITIES:-

A. Cash receipts from

sales xxx
commission & fees xxx
interest received xxx
B. Cash payments for
purchases xxx
payment to and for employees xxx
operating expenses xxx
interest payments xxx
direct taxes paid xxx
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Net cash flow from operating activities xxxx
 INDIRECT METHOD:-
CASH FLOW FROM OPERATING ACTIVITIES:-
Net profit for the year xxx
(+) Non – cash expenses:-
depreciation, preliminary expenses w/off,
shares discount w/off, goodwill w/off,
loss on sale of fixed assets, proposed dividend,
loss on revaluation, provision for taxations, etc. xxx
(-) Non – cash Incomes:-
profit on sale of fixed assets xxx
--------------------------------------------------------------------------------------------------
Operating profit before working capital changes:- xxxx
(+) Decrease in current assets xxx
(+) Increase in current liabilities xxx
(-) Increase in current assets xxx
(-) Decrease in current liabilities xxx
--------------------------------------------------------------------------------------------------
Cash generated from operating activities xxxx
(-) interest/ taxes paid xxx
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Net cash flow from operating activities xxxxx
 EXCLUSIVE TREATMENTS:-
INTEREST AND DIVIDEND:-
a. On the basis of nature of enterprise:-
financial enterprises:-
interest paid– operating activities.
dividend paid – financing activities.
interest / dividend – operating activities.
other enterprises:-
interest / dividend paid– financing activities.
interest / dividend received – investment activities.

b. Interest received-
interest received from investment – investment activities.
interest received from short term investments – operating activities.
interest received on trade advances/ operating receivables – operating
activities.
c. Interest paid:-
on loans / debts – financing activities.
on working capital loan or any other loan taken to
financial operating activities – operating activities.

TREATMENT OF TAX

Cash flows by tax payment – operating activities.

Cash flows for tax refund – operating activities.

If transactions is related to investing/ financing then appropriate

allocation should be done.
NON- CASH TRANSACTIONS

Non – cash transactions which is not having any influence on

investing and financing activities should be excluded from
cash flow statement and to be disclosed in financial
statements.
Transactions like-
* purchase of assets by issue of debentures;
* purchase of an enterprise by means of issue of shares/
debentures;
* conversion of debt to equity; etc.

EXTRAORDINARY ITEMS
Cash flows associated with extraordinary items should be
classified as arising from operating, investing and financing
activities as appropriate and disclosed accordingly.
 CASH FLOW PATTERN AND
THEIR ANALYSIS
+++ = co. using cash generated from
operations, from sale of assets and from
financing to build up pile of cash – very liquid
co. possibly looking for acquisition.

++- = co. using cash from operations and

from sale of fixed assets to pay down debt or
to pay owners.
+-+ = co. is using cash from operations and
from borrowing (or from owners investments)
to expand.

+-- = co. is using flows generated from

operations to buy fixed assets and to pay down
debts or to pay owners.
-++ = co’s operating cash flow problems are
covered by sale of fixed assets, by borrowing,
or by stockholders contributions.

-+- = co. is financing operating cash flow

shortages and payments to creditors and/or
stockholders (owners) via sale of fixed assets.
--+ = co. is growing rapidly, but has shortfall in
cash flows from operations and purchase of fixed
assets financed by long term debt or new
investments.

--- = co. is using cash reserves to finance operation

shortfall and pay long term creditors and/ or
investors.
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Where,
+ means inflows and – means outflows of cash and cash equivalents
Tom Lee (1984) is of the opinion that cash
flow statement or cash flow report is
capable of providing the owners of the
business with an in-depth disclosure of the
profits and operating cash flow.

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