Cash Flow Statement Lectures | PGTRB Unit 3- Management Accounting
(Tamil Lectures Video and Study Notes)
Cash Flow Statement
·The Institute of Chartered Accountants ofIndia (ICAI) issued the Accounting Standard (AS-3) relating to the preparationof cash flow statement (CFS) for accounting periods commencing on or after April1, 2001 for enterprises
o(i) which have either turnover of morethan Rs. 50 crore in a financial year or
o(ii) the shares of which are listed instock exchange (i.e. the listed companies) in India or outside India or
o(iii) enterprises which are in the processof listing their equity or debt securities as evidenced by the Board ofDirectors’ resolution in this regard.
·The CFS of listed companies should bepresented as per the indirect method prescribed in AS-3.
Objectives
·To assess the ability of the enterprise togenerate cash and cash-equivalents and the needs of the enterprise to utilisethose cash flows.
·An evaluation of the ability of an enterpriseto generate cash and cash-equivalents and the timing andcertainty of their generation.
·The CFS deals with the provision ofinformation about the historical changes in cash and cash equivalents of anenterprise by means of a cash flow statement which classifies cash flows duringthe period among
o(i) operating, (ii) investing and(iii) financing activities.
Benefits of Cash Flow Operation
·A cash flow statement, when used in conjunctionwith the other financial statements, provides information
·Evaluate the changes in net assetsof an enterprise, its financial structure (including itsliquidity and solvency), and its ability to affect the amounts and timingof cash flows in order to adapt to changing circ*mstances andopportunities.
·This information helps to developmodels to assess and compare the present value of the future cash flows ofdifferent enterprises.
·Enhances the comparability of thereporting of operating performance by different enterprises.
Components
| Cash | Cash Equivalents | Cash Flows |
| Cash in hand and demand deposits with banks. | · Short-term highly liquid investments that are readily convertible into known amounts of changes in value. · Short maturity à three months or less from the date of acquistion, · For example, treasury bills. | These are inflows and outflows of cash and cash-equivalents. |
| CFS Activity | Meaning | Examples |
| Operating Activities | · Primarily accrue from the major revenue producing activities (i.e., sale of goods and rendering of services) of the enterprise. · the transactions and other events that enter into the determination of net profit or loss. | Cash receipts · Sale of goods and services · Royalties, fees, commissions Cash Payments · Suppliers for goods and services · Employees Cost Both Receipts / Payments · Insurance premiums and claims, annuities and other policy benefits · Income taxes (Payment / Refund) · Futures, Forward, Option, and Swap contracts which dealing or trading purpose |
| Investing Activities | · Relate to the acquisition and disposal of long-term assets and other investments not included in cash-equivalents. · the expenditures to generate future income and cash flows. | Cash Receipts · Disposal of fixed assets (including intangibles) · Disposal of shares, warrants, or debt instruments and interests in joint ventures · Receipts from Repayment of advances and loans Cash Payments · Acquire fixed assets (including intangibles, R &D Cost) · Acquire shares, warrants or debt instruments and interests in joint ventures. · Acquire Cash advances and loans |
| Financing Activities | · Changes in the size and composition of the share/owner’s capital and debt of the enterprise. · Future cash flows by providers of funds (both capital and borrowings) to the enterprise. | Cash proceeds (Receipts) · Issue of shares or other similar instruments · Issue of debentures, loans, notes, bonds and other · short-term or long-term borrowings Cash Repayment · Redemption of Debentures / Repay loans · Buy-back of shares · Redemption of preference shares · Dividend/interest paid |
Methods of Cash flows from Operation Activities
TradingProfit and Loss Account
| Particulars (Dr) | Amount | Particulars (Cr) | Amount |
| To Opening Stock | *** | Sales (less return) | *** |
| To Purchases (less return) | *** | Closing Stock | *** |
| To Manufacturing Expenses (Wages, Carriage…) | *** | Loss on stock by fire | *** |
| To Gross Profit | *** | ||
| *** | *** | ||
| To Administrative Expenses (Salary, Rent, Stationery) | *** | By Gross Profit | *** |
| To Selling and Distribution (Commission, Discount) | *** | By Other Income (Discount received..) | *** |
| To Non-Operating Expenses - Depreciation - Provision for Bad debts - Interest on debentures | *** | To Non-Operating Incomes - Rent Received - Interest Received - Dividend Received | *** |
| To Net Profit | *** | *** | |
| *** | *** |
