1. CASHFLOW STATEMENT

2. MEANING
• CASH
i. Cash in hand
ii. Demand Deposits in Banks
iii. Cash Equivalents
• Cash equivalents are short-term, highly liquid
investments, readily convertible into cash and
which are subject to insignificant risk of
changes in values.

3. • Flow:flow means flow of cash from business to
economy and economy to business.
• Statement:statement is a performa prescribed by
Charted Accountant Act,1948.
Thus,
cash flow statement is a statement of inflows(sources)
and outflows(uses) ofcash and cash equivalents in an
enterprise during a specified period of time.

4. Categories of Inflows And Outflows
• The statement of cash flow shows three main
categories of cash inflows and cash outflows, namely :
operating, investing and financing activities.
• Operating activities are the principal revenue
generating activitiesof the enterprise.
• Investing activities include the acquisition and
disposal of longtermassets and other investments not
included in cash equivalents.
• Financing activities are activities that result in change
in the size and composition of the owner’s capital
(including Preference share capital in the case of a
company) and borrowings of the enterprise.

5. Operating Activities
• Cash Outflows: • Cash Outflows:
• Cash from sales • Cash purchases
• Cash received from • Payment to creditors
Debtors • Cash operating expenses
• Paymant of wages
• Cash received from commision and • Income tax
fees
• royalty and other revenues

6. Investing Activities
• Cash inflow: • Cash outflow:
• Sale of fixed assets • Purchase of fixed assets
• Sale of investments • Purchase of investments
• Interests received
• Dividend received

7. Financing Activities
• Cash inflow: • Cash outflow :
• Issue of shares • Cash repayments of amount
• Issue of debuntures in cash borrowed
• Proceeds of long term short term • Interest paid on loans/debentures
borrowings • Dividends paid on equity and
preference share capital

8. Cash flow Fund flow
• Meaning of fund:means only cash • Fund means net working capital
component ofcurrent assets.
• Objective:is to know about the changes • To know about the changes occurred in
occurred in cash position between two net working capital between two balance
balance sheet dates. dates
• Basis of preparation:increase in current • Increase in current liability and decrease
liability or decrease in current asset in current asset results in a decrease in
results in increase in cash or vice versa. net working capitaland vice versa
• Utility:useful for short term analysis • Useful for lonterm analysis
• Effect of transaction:effect of a • Effect of a transaction only on net
transaction only on cash is considered working capital is considered
• Cash balances:opening and closing • Opening and closing balances are shown
balances are shown in cash flow in statement of changes in working
statement capital

9. Limitations of cash flow statement
Though it is true that cash flow statement is very
useful now-a-days and serves many purposes.
But it is necessary to take certain precautions
while making use of this important tool.
• It is very difficult to precisely define the term
‘cash’
• There are controversies over a number of items
like cheques, stamps,postal orders etc. to be
included in cash or not.

10. • As the present business moves from the cash
basis to accrual basis, the prepaid and credit
transactions might be represented an increase
in working capital and it would be misleading
to equate net income to cashflow because a
number of non cash items would affect the
net income.

11. Balance sheet
liabilities 2005 2006 assets 2005 2006
(Rs. ‘000) (Rs. ‘000) (Rs.’000) (Rs.’000)
Paid up 50 50 Gross fixed 1000 1125
capital assets
Retained 350 415 Accrued (100) (175)
earnings depriciation
Long term 500 550 inventory 100 110
debts
Notes 80 100 Accounts 50 60
payable recevables
Accounts 80 90 cash 10 85
payable
total 1060 1205 total 1060 1025

12. Income Statement (Rs.’000)
• Sales 1200
• Cost of goods sold (800)
• Gross profit 400
• Selling,general and administartion (150)
• EBIT 250
• Int. exp (50)
• EBT 200
• Taxes (100)
• Net income 100

13. • Additional information (Rs.’000)
• Dividend paid 35
• Additions to be retained 65
• Depreciation 75

14. THANK YOU!