Definitions [1]
Definition: Cash Flow Statement
- Cash Flow Statement is a statement that shows inflows and outflows of cash and cash equivalents under Operating, Investing and Financing Activities of a company during a particular accounting period.
- Cash Flow Statement can be defined as a “Statement which summarises sources of cash inflows and uses for cash outflows during a particular period.”
Key Points
Key Points: Cash Flow Statement
- A Cash Flow Statement shows cash inflows and outflows during a specific accounting period.
- It covers cash from operating, investing, and financing activities.
- It helps explain the net change in cash between two balance sheet dates.
- The statement is useful for short-term planning, liquidity analysis, and decision-making.
- It is prepared as per Accounting Standard-3 (AS-3 Revised).
- It helps assess a company’s performance, liquidity, and solvency through activity-wise analysis.
- Limitations: It ignores non-cash items, reflects only past data, and does not measure profit.
Key Points: Procedures for Preparing Cash Flow Statement
- A Cash Flow Statement shows the inflow and outflow of cash and cash equivalents from operating, investing, and financing activities, as per Accounting Standard-3 (Revised).
- Cash includes cash in hand, cash at bank, and demand deposits that are payable on demand.
- Cash equivalents are short-term investments (with a maturity of three months or less) that are highly liquid and carry an insignificant risk of change in value.
- Cash inflow refers to an increase in cash or cash equivalents, while cash outflow refers to a decrease in them.
- Bank overdrafts are treated as financing activities, and only those short-term investments that meet the criteria are considered cash equivalents.
Key Points: Classification of Business Activities
- Three Main Categories: Cash flows are classified into Operating, Investing, and Financing activities as per AS-3 (Revised).
- Operating Activities: Include core business transactions such as cash from sales, trade receivables, royalties, and payments for expenses, wages, and taxes.
- Investing Activities: Involve the purchase or sale of long-term assets and investments, including property, equipment, shares, and loans to third parties.
- Financing Activities: Cover changes in equity and borrowings, such as the issue/redemption of shares, debentures, and loans, and the payment of interest and dividends.
- Special Items: Interest, dividends, and taxes are classified based on their nature (e.g., interest paid = financing, interest received = investing).
- Importance of Disclosure: Separate disclosure of each activity helps assess cash sources and uses, as well as the financial health of the business.
Key Points: Treatment of Some Peculiar Items
- Extraordinary items (such as theft or a flood) are shown separately under the appropriate activities to reflect the true cash flow impact.
- For financial enterprises, interest/dividend received and interest paid are operating; dividend paid is financing. For non-financial items, interest/dividends received are investing; interest/dividends paid are financing.
- Taxes: tax on operating profit is operating, dividend tax is financing, and capital gains tax is investing; all must be shown separately.
- Non-cash transactions (e.g., asset purchase via shares) are excluded from the cash flow statement but disclosed elsewhere.
- No cash flow is recorded for depreciation, credit sales/purchases, bank transfers, or bonus shares, as they don't involve real cash movement.
Format: Net Profit before Tax
Determination of Net Profit before Tax
| Particulars | ₹ |
|---|---|
| Difference between Closing Balance and Opening Balance of Statement of Profit & Loss (Under Reserve and Surplus) | ............. |
| Add: Proposed Dividend (for previous year) | ............. |
| Interim Dividend paid during the year | ............. |
| Transfer to Reserves | ............. |
| Provision for Income Tax (for current year) (Less Refund of Income Tax) | ............. |
| Net Profit Before Tax | ............. |
Difference Between Net Profit and Cash from Operations
| Basis | Net Profit | Cash from Operations |
|---|---|---|
| Meaning | Net result of business activities | Cash from operating activities |
| Non-Cash Operating | Includes non-cash items like depreciation | Excludes non-cash items |
| Non-Operating Items | Includes non-operating items | Excludes non-operating items |
| Basis of Calculation | Accrual basis | Cash basis |
| Working Capital Changes | Not considered | Considered |
Format: Cash Flow from Operating Activities (Indirect Method)
CASH FLOW FROM OPERATING ACTIVITIES
| Particulars | Amount (₹) |
|---|---|
| Net Profit / Loss before Tax and Extraordinary Items | ....... |
| Add: Deductions already made in Statement of Profit and Loss on account of non-cash items such as Depreciation, Goodwill to be Written-off | ....... |
| Add: Deductions already made in Statement of Profit and Loss on account of non-operating items such as Interest | ....... |
| Less: Additions (incomes) made in Statement of Profit and Loss on account of non-operating items such as Dividend received, Profit on sale of Fixed Assets | ....... |
| Operating Profit before Working Capital changes | |
| Add: Increase in current liabilities and decrease in current assets (excluding cash & cash equivalents) | ....... |
| Less: Decrease in current liabilities and increase in current assets (excluding cash & cash equivalents) | ....... |
| Cash Flow from Operating Activities before Tax and Extraordinary Items | |
| Less: Income Tax Paid | ....... |
| Add/Less: Effects of Extraordinary Items | ....... |
| Net Cash from Operating Activities | ....... |
Format: Investment Account for Ascertaining Missing Values (e.g., Purchase, Sale, Gain/Loss on Sale)
INVESTMENT ACCOUNT
Dr. Cr.
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Balance b/d | ...... | By Bank A/c (Sale) | ...... |
| To Bank A/c (Purchase) | ...... | By Loss on Sale of Investment A/c (Statement of Profit & Loss) |
...... |
| To Gain (Profit) on Sale of Investment A/c (Statement of Profit & Loss) |
...... | ||
| By Balance c/d | ...... | ||
| ...... | ...... |
Format: Property, Plant and Equipment Account (At Written Down Value)
When Property, Plant and Equipment is shown at Written Down Value (i.e., Cost less Depreciation)
PROPERTY, PLANT AND EQUIPMENT ACCOUNT
Dr. Cr.
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Balance b/d | ...... | By Bank A/c (Sale Proceeds) | ...... |
| To Bank A/c (Purchase) | ...... |
By Loss on Sale of Property, Plant and Equipment A/c (Statement of Profit & Loss) |
...... |
|
To Gain (Profit) on Sale of Property, Plant and Equipment A/c (Statement of Profit & Loss) |
...... | ||
| By Depreciation A/c | ...... | ||
| By Balance c/d | ...... | ||
| ...... | ...... |
Format: Property, Plant and Equipment Account (At Cost)
PROPERTY PLANT AND EQUIPMENT ACCOUNT
Dr. Cr.
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Balance b/d | ...... | By Bank A/c (Sale Proceeds of Property, Plant and Equipment) | ...... |
|
To Gain (Profit) on Sale of Property, Plant and Equipment A/c (Statement of Profit & Loss) |
...... | By Accumulated Depreciation A/c (on Property, Plant and Equipment Sold) | ...... |
|
By Loss on Sale of Property, Plant and Equipment A/c (Statement of Profit & Loss) |
...... | ||
| To Bank A/c (Purchase of Property, Plant and Equipment) | ...... | ||
| By Balance c/d | ...... | ||
| ...... | ...... |
Format: Accumulated Depreciation Account
ACCUMULATED DEPRECIATION ACCOUNT
Dr. Cr.
| Particulars | ₹ | Particulars | ₹ |
|---|---|---|---|
| To Property, Plant and Machinery A/c (Depreciation till date on asset sold) | ...... | By Balance b/d | ...... |
| To Balance c/d | ...... | By Depreciation A/c (Depreciation charged for the current year) | ...... |
| ...... | ...... |
Format: Cash Flow from Investing Activity
CALCULATION OF CASH FLOW FROM INVESTING ACTIVITIES
| Particulars | ₹ |
|---|---|
| I. Cash Inflow from Investing Activities | |
| Proceeds from Sale of Property, Plant, and Equipment (e.g., Machinery) | ............. |
| Proceeds from Sale of Intangible Assets (e.g., Goodwill, Patents) | ............. |
| Proceeds from Sale of Non-Current / Long-Term Investments | ............. |
| Loans and Advances Repayment Received (Short-term or Long-term) | ............. |
| Income from Investment | ............. |
| Interest Received on Debentures | ............. |
| Dividend Received on Shares | ............. |
| Rent Received | ............. |
| II. Cash Used in Investing Activities | |
| Payment for Purchase of Property, Plant, and Equipment (e.g., Machinery) | (..........) |
| Payment for Purchase of Intangible Assets (e.g., Goodwill, Patents) | (..........) |
| Payment for Purchase of Non-Current / Long-Term Investments | (..........) |
| Loans and Advances Given (Short-term or Long-term) | (..........) |
| III. Net Cash Flow from Investing Activities (I – II) | ............. |
Format: Cash Flow from Financing Activity
CALCULATION OF CASH FLOW FROM FINANCING ACTIVITY
| Particulars | ₹ |
|---|---|
| I. Cash Inflow from Financing Activities | |
| Proceeds from Issue of Equity or Preference Shares | ............. |
| Proceeds from Issue of Debentures (excluding discount ) | ............. |
| Premium received on Issue of Shares and Debentures | ............. |
| Loans Received (Both Short-term and Long-term, including Bank Overdraft and Cash Credit) | ............. |
| II. Cash Used in Financing Activities | |
| Redemption of Preference Shares for Cash (including premium) | (..........) |
| Redemption of Debentures for Cash (including premium) | (..........) |
| Payment for Buy-back of Equity Shares (including premium) | (..........) |
| Share Issue Expenses / Underwriting Commission Paid | (..........) |
| Repayment of Loans (Both Short-term and Long-term, including Bank Overdraft and Cash Credit) | (..........) |
| Interest Paid on Borrowings (Debentures and Loans) | (..........) |
| Interim Dividend Paid during the Year | (..........) |
| Final Dividend Paid on Equity Shares (Proposed Dividend of Previous Year) | (..........) |
| Final Dividend Paid on Preference Shares (Proposed Dividend of Previous Year) | (..........) |
| III. Net Cash Flow from Financing Activities (I – II) | ............. |
Format: Cash Flow Statement
CASH FLOW STATEMENT for the year ended
| Particulars | ₹ | ₹ |
|---|---|---|
| A. Cash Flows from Operating Activities | ||
| Net Profit before Tax | .......... | |
| Adjustments for Non-Cash and Non-Operating Items | ||
| Add: Depreciation | .......... | |
| Preliminary Expenses/Discount on issue of Debentures written off | .......... | |
| Goodwill, Patents and Trademarks Amortised | .......... | |
| Interest paid on short-term and long-term Borrowings | .......... | |
| Interest paid on Bank Overdraft/Cash Credit | .......... | |
| Loss on Sale of Property, Plant & Equipment and Intangible Assets | .......... | |
| Increase in Provision for Doubtful Debts | .......... | |
| Less: Interest Income | (..........) | |
| Dividend Income | (..........) | |
| Rental Income | (..........) | |
| Gain on Sale of Property, Plant & Equipment and Intangible Assets | (..........) | |
| Decrease in Provision for Doubtful Debts | (..........) | (..........) |
| Operating Profit before Working Capital Changes | .......... | |
| Add: Decrease in Current Assets | .......... | |
| Increase in Current Liabilities | .......... | |
| Less: Increase in Current Assets | (..........) | |
| Decrease in Current Liabilities | (..........) | (..........) |
| Cash generated from operations | .......... | |
| Less: Income Tax Paid (Net of Refund) | (..........) | |
| Net Cash from (or used in) Operating Activities | .......... | .......... |
| B. Cash Flows from Investing Activities | ||
| Proceeds from Sale of Property, Plant and Equipment | .......... | |
| Proceeds from Sale of Intangible Assets like goodwill | .......... | |
| Proceeds from Sale of Non-Current Investments | .......... | |
| Interest and Dividend Received | .......... | |
| Rent Received | .......... | |
| Purchase of Property, Plant and Equipment | (..........) | |
| Purchase of Intangible Assets like goodwill | (..........) | |
| Purchase of Non-Current Investments | (..........) | (..........) |
| Net Cash from (or used in) Investing Activities | .......... | .......... |
| C. Cash Flows from Financing Activities | ||
| Proceeds from Issue of Shares and Debentures | .......... | |
| Proceeds from Other Long-term Borrowings | .......... | |
| Proceeds from Short-term Borrowings: | ||
| (i) Increase in Balance of Bank Overdraft or Cash Credit | .......... | |
| (ii) Decrease in Balance of Bank Overdraft or Cash Credit | (..........) | |
| Payment of Interim Dividend | (..........) | |
| Payment of Proposed Dividend of Previous Year | (..........) | |
| Interest Paid on Short-term and Long-term Borrowings | (..........) | |
| Interest Paid on Bank Overdraft/Cash Credit | (..........) | |
| Repayment of Loans (Short-term or Long-term) | (..........) | |
| Redemption of Debentures/Preference Shares | (..........) | (..........) |
| Net Cash from (or used in) Financing Activities | .......... | .......... |
| Net Increase / (Decrease) in Cash & Cash Equivalents (A + B + C) | .......... | |
| Add: Cash & Cash Equivalents at Beginning of the Year | .......... | |
| Cash & Cash Equivalents at End of the Year | .......... |
Note: Calculation of Net Profit Before Tax
| Particulars | ₹ |
|---|---|
| Net Profit of the current year (after appropriations) | .......... |
| (Difference between Closing Balance and Opening Balance of Statement of Profit & Loss, under Reserve and Surplus) | |
| Add: | |
| Transfer to Reserves (all transfers to Reserves from balances of the Statement of Profit & Loss) | .......... |
| Proposed Dividend of Previous year | .......... |
| Interim Dividend paid during the year | .......... |
| Provision for Income Tax made during the current year (Less Refund of Income Tax) | .......... |
| Net Profit before Tax | __________ |
