Professional Documents
Culture Documents
Lecture 4
Lecture 4
Particulars
To Vehicle Running ex a/c To Office Rent a/c To Salary a/c To Travelling Exp. To Depreciation a/c To Ins. Premium a/c To Phone charges To Interest a/c To Profit taken to B/S
Amount In Rs.
1,800 2,000 5,500 7,700 5,000 56 2,100 2,000 14,844
Particulars
By Commission a/c
41,000
41,000
Amoun t in Rs.
Assets
Amoun t in Rs.
20,000 10,000 3,000 674 59,270 11,000
100,000 Furniture -656 Rent Deposit 99,344 Phone Deposit Prepaid Insurance 2,000 Bank 2,600 Cash
103,944
5 103,944
What is a CFS?
Provides information on the changes in cash position of a company over a period of time Companies are required to summarize transactions affecting the cash position into operating, investing and financing activities Direct and Indirect Methods are available Cash from operating activities provide valuable information as to earning quality when compared with Net Income
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Operating Income results in (exactly opposite for expenses) increase in equity and
Increase in Current Assets or Decrease in Current Liabilities
(very rarely otherwise)
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10
10 (2,400)
Net change in Cash during the period Balance at the beginning of the 11
(5,900) 11 70,270
Non-cash
Cash or Non-cash
Cash
Operating
Operating or Non-operating
Leave it alone
Non-operating
Neutralize its effect and show under Investing / Financing 12
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Pick up from flowchart items knocked out due to their being arising out of investing activities (include cash flow and NOT the profit/loss) Look for changes in items of Fixed Assets and Investments Again tick off changes that have been captured Pick up from flowchart items knocked out due to their being arising out of financing activities Look for changes in items of Equity and Reserve arising NOT out of current years Profit Again tick off changes that have been captured
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Indirect the
Prepaid Insurance Interest Less: Comm. Receivable Operating profit before W/C Changes
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Indirect the
A Step Back!
Before we close the chapter on CFS, here is a look back In our attempt to capture the changes in B/S on two different dates that have moved through cash, how does the Feb B/S looks like AFTER we have neutralized all non-cash items and non-cash components of items in the P/L A/C ? The answer is on the next page Compare this B/S with the Jan B/S note the differences only with respect to Decrease in C/Liabilities and non-operating cash flows!
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Summary
Cash Flow Statement captures the impact on cash of the changes between two B/Sheets. An alternative exercise called Fund Flow Statement captures the impact on Working Capital This impact is split up into three components operation, investment and financing Cash includes cash, bank balance and investment into short-term instruments which are easily converted into cash without much loss of principal
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