1. Statement of Changes in Financial Position : Cash Flow Statement

2. The Cash Flow Statement
The cash flow statement provides information about:
Cash Receipts (cash inflows)
Uses of Cash (cash outflows)
During a Period of Time
Inflows and outflows are reported for:
Operating activities
Investing activities
Financing activities

3. Cash Inflows and Outflows

4. Classification of Business Activities : Inflow and Outflow of Cash
Operating Activities
Cash Inflow
1) Cash Sales
2) Received from Debtor
3) Commission & Fees
4) Royalty
Cash Outflow
1) Cash Purchases
2) Payment to Creditors
3) Cash Operating Expenses
4) Payment of Wages
5) Income Tax
6) Manufacturing Expenses
Cash effects the transaction on Net Income

5. Classification of Business Activities : Inflow and Outflow of Cash
Investing Activities
Cash Inflow
1) Sale of Fixed Assets
2) Sale of investments
3) Interest Received
4) Dividend Received
5) Working Capital Recovery
Cash Outflow
1) Purchase of Fixed Assets
2) Purchase of Investments
3) Working Capital

6. Classification of Business Activities : Inflow and Outflow of Cash
Financing Activities
Cash Inflow
1) Issue of Shares in Cash
2) Issue of Debentures in
Cash
3) Proceeds from long-term
borrowings
Cash Outflow
1) Payment of Loans
2) Redemption of Preference
Shares
3) Payment of Dividends
4) Interest Paid
5) Repayment of Finance/
Lease Liability

7. Objectives of Cash Flow Statement
Highlighting cash flow from different activities
Short-term Planning
Cash Flow information helps to understand liquidity
Efficient cash management
Prediction of sickness
Comparison with budget
Cash position

8. Cash Flow Statement : Limitations
Does not show the liquidity position of the firm
It is not a substitute of income statement
Does not show the financial position of the firm in totality

9. Distinction between Cash flow Statement and Funds Flow Statement
Basis Of Difference
Cash Flow
Funds Flow
Basis of
Accounting
It recognizes Cash basis
Of accounting
It is based upon accrual
Basis of accounting I.e
Working capital
Significance
It is useful for short-
Term financial planning
It is useful for long-term
Financial planning
Schedule of
Changes in
Working Capital
Such a schedule is not
Prepared for preparing
Cash flow statement
Schedule of changes in
Working capital is
Prepared separately
Causes of
Variation
It studies only the
Causes of cash
variation
It studies causes of Ch-
ange in working capital

10. Preparing a Statement of Cash Flows
Use net operating income as the starting point to get net operating cash flow
Add back any non-cash expense
(Example - Depreciation)
Net Cash Flow = Cash Inflow - Cash Outflow
Net Operating Cash Flow = Income after Taxes
+ Depreciation

11. Preparing a Statement of Cash Flows
Order of Presentation:
Operating activities.
Investing activities.
Financing activities.
Direct Method
Indirect Method
Three Sources of Information:
Comparative balance sheets
Current income statement
Additional information

12. Cash Flow from Operating Activities : Direct Method
Amount
(Rs.)
Cash Receipts from :
Sales
Commission & Fees
Interest Received
Cash Payment for :
Purchases
Payments to and for employees
Operating Expenses
Interest Payments
Direct Taxes Paid
Net Cash Flow from Operating Activities
XXX
Amount
(Rs.)
XXX

13. Cash Flow from Operating Activities : Indirect Method
Amount
(Rs.)
Net Profit before Tax
Adjustment for :
Depreciation
Loss on Sale of Fixed Assets
Loss on revaluation
Operating Profit before Working Capital Changes
Adjustment* for :
Trade and other Receivables
Inventories or Stocks
Trade Payments or (Creditors and B/P)
Cash Generated from Operations
Interest Paid
Taxes Paid
Net Cash Flow from Operating Activities
xxx
XXX

14. Preparing the Statement of Cash Flows
Indirect and Direct Methods
Companies favor the indirect method for two reasons:
It is easier and less costly to prepare, and
It focuses on the differences between net income and net cash flow from operating activities.

15. Book Approach Income Statement Cash Flow Statement Operating +
+Net Income
+Depreciation
-Capital Investment
+Salvage Proceeds
-Gain Tax
-Working Inv Cap
+Working Cap Recovery
+Borrowed Funds
-Repayment of Principal
Revenues
Expenses
Cost of Goods Sold
Depreciation*
Operating Expenses
Taxable Income
Income Taxes
Net Income
Operating +
Investing +
Financing
*Assumes Tax Depreciation = Book Depreciation
Thus, no deferred taxes

16. Format for Cash Flow Statement

17. End of Presentation ********************** Thank You