Meaning of Cash Flow Statement :
Cash Flow Statement refers to that statements which shows inflow (receipts) and outflow (payments) of cash in an organisation during a particular period.It is a source of cash during a particular span of time.It analysis the change between two balance sheet date. The term cash here stands for cash and cash equivalents. Cash Flow Statements includes those items which effect cash.
Objectives or Use of Cash Flow Statements :
- Cash Flow Statement is used for short-Term financial planning.
- Cash Flow Statement prepared for the future period is helpful in preparing a cash budget.
- A cash flow statement prepared for the comparison of cash budget.
- Prepared to study of trend of cash receipts and payments.
- Cash flow statements helps organisation in making dividend decision.
Limitations of Cash-Flow Statements :
- It doesn′t help organisation to judging liquidity.
- Cash flow statements ignores non-cash transactions.
- It ignores accrual concept of accounting.
- Historical in nature….
Format of CASH FLOW STATEMENTS :
Cash Flow Statement for the year ended …………
( Indirect Method )
| A. Cash Flow from Operating Activities
Net Profit Before Tax ( See note no.1 )
Adjustments for non cash and non operating items :
Preliminary expenses/ Discount on issue of shares and Debentures written off, Goodwill, Patents and Trademarks Amortised , Interest on long-term borrowings, loss on sale of Fixed assets.
Less : Interest Income , Dividend Income, Rental Income, Profit on sale of Fixed Assets.
Operating profit before Working Capital Changes
Add : Decrease in Current Assets Increase in current Liabilities.
Loss : Increase in Current Assets Decrease in Current Liabilities.
Cash generated from operations
Less : Income Tax paid ( Net of Tax Refund received )
Net cash from Operating Activities.
B. Cash Flow from Investing Activities :
Proceeds from sale of tangible Fixed Assets Proceeds from sale of Intangible Fixed Assets like Goodwill Proceeds from sales of Non-Current Investments Interest and Dividend received Rent received
Purchase of Tangible fixed assets purchase of intangible Fixed Assets like Goodwill Purchase of Non-Current Investments
Net cash from investing activities .
C. Cash Flow from Financing Activities :
Proceeds from issue of Shares and Debentures, Other long-term borrowings. Final dividend paid, Interim dividend paid Interest on long-term borrowings paid Repayment of loans Redemption of debentures.
Net cash from Financing Activities.
Net Increases or decreases in cash and cash equivalent
Add : Cash and cash equivalent in the beginning of the year
Cash and cash equivalent at the end of the year.