Cash Flow Statement also known as Statement of Cash Flows is a statement which shows the Changes in the Cash Position of an organisation between 2 periods. Along with showing the changes in the Cash Position of an organisation, it also depicts the reasons for such change during the period.

The main reason for the preparation of the Cash Flow Statement is that the Income Statement of an enterprise is always prepared on an Accrual Basis and it may show profits in the Income Statement but the Cash received out of these profits may be low to run the business or vice-versa.

Cash Flows Statement is required to be prepared using International Accounting Standard 7 or using the Accounting Standard 3 in India. While preparing the Cash Flow Statement, the cash flows during the period are classified into 3 major categories: Classification by activities provides information that allows users to assess the impact of those activities on the financial position of the enterprise.

This information also helps in evaluating the inter-relationships between these activities. Cash Flows from operating Activities are primarily derived from the Principal Revenue-producing activities of the enterprise.

There are 2 methods of preparing the Cash Flows from Operating Activities: While preparing the Cash Flow Statement as per Direct Method , Actual Cash Receipts from Operating Revenues and Actual Cash Payments for Operating Activities are arranged and presented in the Cash Flow Statement. The difference between Cash Receipts and Cash Payments is the Net Cash Flow from Operating Activities under the Direct Method.

While preparing the Cash Flow Statement as per Direct Method , items like Depreciation , Amortisation of Intangible Assets , Preliminary Expenses , Debenture Discount etc are ignored from Cash Flow Statement since the Direct Method includes only Cash Transactions and Non-Cash Transactions are omitted. Format for Computation of Cash Flows from Operating Activities as per Direct Method.

The Indirect Method of preparating of Cash Flow Statement is a partial conversion of accrual basis profit to Cash basis profit.

Cash Flow Statement – Direct & Indirect Method

Format of Cash Flows from Operating Activities — Indirect Method. The activities of Acquisition and Disposal of Long Term Assets and other Investments not included in cash equivalents are Investing activities. Separate disclosure of Cash Flows arising from Investing Activities is important because the Cash Flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.

The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting the claims on future cash flows by the providers of funds.

Definition of 'Cash Flow' - The Economic Times

The Comprehensive Format of the complete Cash Flow Statement is as follows: Karan is CA by Qualification with the rare distinction of being awarded All India Rank He is also the founder of this website and loves to help people with their Tax Queries. Select your email service Close Gmail Yahoo!

Preparation of Cash Flow Statement Cash Flows Statement is required to be prepared using International Accounting Standard 7 or using the Accounting Standard 3 in India.

Cash Flow from Investing Activities III. Cash Flow from Financing Activities Classification by activities provides information that allows users to assess the impact of those activities on the financial position of the enterprise.

Cash Flows from Operating Activities Cash Flows from operating Activities are primarily derived from the Principal Revenue-producing activities of the enterprise. Cash Flow from Operating Activity- Direct Method While preparing the Cash Flow Statement as per Direct Method , Actual Cash Receipts from Operating Revenues and Actual Cash Payments for Operating Activities are arranged and presented in the Cash Flow Statement. Format of Cash Flows from Operating Activities — Indirect Method Particulars Amount Net Profit before Tax and Extra-ordinary items xxx Adjustments for — Depreciation xxx — Foreign Exchange xxx — Investments xxx — Gain or Loss on Sale of Fixed Assets xxx — Interest Dividend xxx Operating Profit before Working Capital Changes xxx Adjustments for — Trade and Other Receivables xxx — Inventories xxx — Trade Payable xxx Cash generated from Operations xxx — Interest Paid xxx — Direct Taxes xxx Cash before Extra-Ordinary Items xxx Deferred Revenue xxx Net Cash Flow from Operating Activities Indirect Method xxx II.

How to prepare Fund Flow statement | Accounting Education

Cash Flow from Investing Activities The activities of Acquisition and Disposal of Long Term Assets and other Investments not included in cash equivalents are Investing activities.

Format of Cash Flow from Investing Activities: Format of Cash Flow from Financing Activities: About the Author Karan Batra Karan is CA by Qualification with the rare distinction of being awarded All India Rank Recommended Posts Now get Admission into IIM directly after Class XII Good News: Now all Students can view their Answer Sheet: Supreme Court Director Identification Number DIN No. MCA 21 — Services Available and Benefits. TDS on Property — NDTV.