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    Cash Flow Statement

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    Vaibhav
    The document discusses cash flow statements which examine where cash comes into a business, how it is used to run operations and capital projects. Cash flow statements have three major components: cash flow from operating activities, investing activities, and financing activities. Cash flow from operating activities adjusts net profit to show actual cash generated from normal business operations. Preparing a cash flow statement involves calculating cash flows from the three components and determining the net change in cash position between the opening and closing balances.

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    Cash Flow Statement

    Uploaded by

    Vaibhav
    336 views11 pages
    The document discusses cash flow statements which examine where cash comes into a business, how it is used to run operations and capital projects. Cash flow statements have three major components: cash flow from operating activities, investing activities, and financing activities. Cash flow from operating activities adjusts net profit to show actual cash generated from normal business operations. Preparing a cash flow statement involves calculating cash flows from the three components and determining the net change in cash position between the opening and closing balances.

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    The document discusses cash flow statements which examine where cash comes into a business, how it is used to run operations and capital projects. Cash flow statements have three major components: cash flow from operating activities, investing activities, and financing activities. Cash flow from operating activities adjusts net profit to show actual cash generated from normal business operations. Preparing a cash flow statement involves calculating cash flows from the three components and determining the net change in cash position between the opening and closing balances.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    336 views11 pages

    Cash Flow Statement

    Uploaded by

    Vaibhav
    The document discusses cash flow statements which examine where cash comes into a business, how it is used to run operations and capital projects. Cash flow statements have three major components: cash flow from operating activities, investing activities, and financing activities. Cash flow from operating activities adjusts net profit to show actual cash generated from normal business operations. Preparing a cash flow statement involves calculating cash flows from the three components and determining the net change in cash position between the opening and closing balances.

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    Cash Flow Statement

    M B Raghupathy
    Finance, Accounting and Control Area
    School of Management and Entrepreneurship

    Basic Financial Management


    January April 2016
    Profit vs. Cash

    Profit is an accounting term


    Sensitive to accounting policies
    Cash is a universal language
    Its close to being objective
    At times
    Highly profitable companies may run out-of-cash;
    Loss making firms may have high cash balance
    What is common among these transactions?

    Depreciation for the year: Rs.100,000


    Sale of finished goods on credit: Rs.1,000,000/-
    Purchase of raw material on credit: Rs.200,000/-
    Salary due for the current period is delayed, and will be paid in
    the following period: Rs.50,000/-
    What is common among these transactions?

    The firm borrowed Rs.5,000,000/- from SBI


    invested Rs.4,000,000 of the same on buying office space on
    prime locality
    The firm paid a final dividend of Rs.200,000 to its shareholders
    A capital gain of Rs.100,000/- was earned by the sale of old
    office equipment
    Cash flow statement
    Examines,
    From where the cash comes into business, how it is being used to run the
    operations, and capital projects
    This is of major interest to stakeholders
    Reasons,
    Measure of liquidity
    Measure of financial flexibility
    Cash flow statement major components

    Cash flow from operating activities


    Cash generated from normal business operations
    Adjusts net profit to reflect actual cash generated from operations
    Calculating cash flow from operating activities:

    Depreciation expenses Increase in current assets


    Decrease in current assets Decrease in current liabilities
    Net
    Profit + Increase in current liabilities
    Loss on disposal of assets
    - Gain on disposal of assets
    Decrease in deferred taxes
    Increase in deferred taxes
    Cash flow statement major components

    Cash flow from investing activities


    Reports changes in cash position as a result of a change in long term assets
    Ex: purchase of machinery (an use of cash); Sale of company vehicle (a
    source of cash)
    Cash flow from financing activities
    Exhibits the changes in cash position as a result of changes in long term
    liabilities
    Ex: Issue of new shares, additional borrowing etc. (Sources of cash);
    payment of dividend, repayment of loans etc.
    Preparing cash flow statement
    Opening cash balance
    +
    Cash flow from operating activities
    +
    Cash flow from investing activities
    +
    Cash flow from financing activities
    =
    Net change in cash position
    =
    Closing cash balance
    Cash flow statement some other examples
    Issues common stock and receives Rs.100,000 if cash
    Buys a building and pays Rs.20,000 cash
    Pays a interim dividend of Rs.1200/-
    Repaid Rs.30,000/- that were borrowed from banks
    Earned Rs.5,000 profit through an open market sale of
    Infrastructure bonds held by the company

    9
    Classify the following cash flow activities

    Deposited cash into current account


    Paid bonus to employees
    Acquired equipment on credit
    Paid cash on maturity of bills payable
    Paid income tax
    Paid cash to settle a suit for trademark infringement
    Purchased a 60-day certificate of deposit
    Issued equity shares on conversion of debentures
    Acquired a machine on hire purchase

    10
    Classify the following cash flow activities

    Issued equity shares at par


    Wrote-off a receivable when a customer became insolvent
    Issued equity shares in exchange for preference shares
    Received cash on maturity of bills receivable

    11

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