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What is Cash Flow Statement?

Cash flow Statement: It is a statement which shows cash inflows and outflows in a particular period of a company through operating, investing and financial activities of a company.

Operating activities:
  • Inflow: Cash sale, cash received from debtors, fees or commission received etc. 
  • Outflow: Cash purchase, payment of wages and salary, income tax etc. 
Investing activities:

·         Inflows: Sale of fixed assets and investment, Interest or dividend received.
·         Out flows:  Investment purchase etc.

Financing activities:

·         Inflows: Issue of share or debenture, Long term loan.
·         Outflows: payment of interest and dividend, payment of loan etc.

Importance of Cash flow statement:

Investors:
·         With the help of it investors find out how the company uses their money to earn profit.
·         It can help to ascertain the cash position in the company.
·         It helps to determine the cash efficiency and liquidity.

Company:
·     With the help of it company can controls the cash outflows and increases cash inflows.
·         With the help of it investors knows cash inflows and outflows sources f a company’s cash.
·         Company can efficiently manage the cash flows.

There are two methods for preparing cash flow statements that is indirect method and direct method. In both the methods results will remain the same but the information shows in statements will be different. Indirect method based on accrual in which adjustments were require in cash flow statement and direct method shows transactions which directly affect the cash flows.

                                          Cash flow statement for the year
                                                ( Direct method)

Particulars
Amount
Amount
Cash flow from operating activities:


Cash sales
-----

Cash receives from operating activities
------

 Cash paid to employees, suppliers
(------)

Income tax paid
(------)

Cash before extra ordinary items

------
+ or – extra ordinary items

----
Net cash flows from operating activities (A)

-------
Cash flow from investing activities


Sale of fixed assets
-------

Purchase of fixed assets
(------)

Interest or dividend received
-------

Purchase of investment
(-----)

Sale of investment
------

Net cash flows from investing activities (B)

------
Cash flow from financing activities


Issue of share capital
------

Repayment of loan
(-----)

Interest paid
(-----)

Dividend paid
(-----)

Net cash flows from financing activities (C)

---------
Net increase or decrease in cash and cash equivalent (A+B+C)

---------
Cash and cash equivalent at the beginning of the year

--------
Cash and cash equivalent at the end of the year

-------

                     Cash flow statement for the year ending
                                     (Indirect method)

Particulars
Amount
Amount
Cash flow from operating activities:
Net profit before tax and extraordinary items
-------
Adjustments: Interest paid
-----
Interest received
(-----)
Depreciation
------
loss on sale of fixed assets
-----
Gain on sale of fixed assets
(-----)
Operating profit before change in working capital
---------
Add: increase in current liabilities
------
Decrease in current assets
------
------
Less: Increase in current assets
------
Decrease in current liabilities
------
------
Cash from operating activities
-------
Income tax paid
(-----)
Cash before extra ordinary items
-------
+ or – extra ordinary items
------
Net cash flow from operating activities (A)
--------
Cash flow from investing activities:
Purchase of fixed assets
(----)
Interest received
-----
dividend received
-----
Purchase of investment
(-----)
Sale of investment
------
Net cash flow from investing activities (B)
-------
Cash flows from financing activities:
Issue of share capital
------
Repayment of loan
(-----)
Interest paid
(-----)
Dividend paid
(-----)
Net cash flows from financing activities (C)
-------
Net increase or decrease in cash and cash equivalent (A+B+C)
------
Cash and cash equivalent at the beginning of the year
--------
Cash and cash equivalent at the end of the year
-------

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