The Cash Flow Statement The cash flow statement provides information about: « Cash Receipts (cash inflows) e Uses of Cash (cash outflows) ¢ During a Period of Time Inflows and outflows are reported for: « Operating activities ¢ Investing activities ¢ Financing activitiesCash Inflows and Outflows Operating Activities Investing Activities Sale of property, plant, and equipment. Sale of debt or equity securities of ‘ther entities, ‘Collection of foams to other entities Financing Activities ‘When cash receipts (revenues) exceed ‘cash expenditures expenses) sIssuance of equity securities, slssuance of debt {bonds and notes) Inflows of Cash + Operating Activ Investing Activities ‘*Purchase of property, plant and Financing Aetivities When eash expenditures ‘Payment of dividends, equipment (expenses) exceed Pirche) ‘Redemption of debt Purchase of debt and equity cash receipts *Reacquisition of capital aoe ities of other entities. se Loans to other entities,Classification of Business Activities : Inflow and Outflow of Cash Operating Activities Cash Inflow Cash Outflow 1) Cash Sales 4) Cash Purchases 2) Received from Debtor 2) Payment to Creditors 3) Commission & Fees 3) Cash Operating Expenses 4) Royalty 4) Payment of Wages 5) Income Tax 6) Manufacturing Expenses Cash effects the transaction on Net IncomeClassification of Business Activities : Inflow and Outflow of Cash Cash Inflow Cash Outflow 1) Sale of Fixed Assets 1) Purchase of Fixed Assets. 2) Sale of investments 2) Purchase of Investments 3) Interest Received 3) Working Capital 4) Dividend Received 5) Working Capital RecoveryClassification of Business Activities : Inflow and Outflow of Cash Financing Acti Cash Inflow Cash Outflow 1) Issue of Shares in Cash 1) Payment of Loans 2) Issue of Debentures in 2) Redemption of Preference Cash Shares 3) Proceeds from long-term 3) Payment of Dividends borrowings 4) Interest Paid 5) Repayment of Finance/ Lease LiabilityObjectives of Cash Flow Statement 1. 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 Wn NOOR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Distinction between Cash flow Statement and Funds Flow Statement Basis Of Difference Cash Flow Funds Flow 5 It recognizes Cash basis] |It is based upon accrual Basis of }— | Of accounting Basis of accounting I.e Accounting Working capital Significance | |It is useful for short- It is useful for long-term} Term financial planning | |Financial planning Schedule of Such a schedule is not | | Schedule of changes in Changes in [—| Prepared for preparing | | Working capital is Working Capital Cash flow statement Prepared separately Causes of eee cn ae It studies causes of C Variati meee ange in working capital anation variation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Preparing a Statement of Cash Flows Order of Presentation: [_birect Method _] [indirect method | 1. Operating activities. 2. Investing activities. 3. Financing activities. Three Sources of Information: 1. Comparative balance sheets 2. Current income statement 3. Additional information‘Amount Cash Flow from Operating Activities Amount (Rs) (Rs) Cash Receipts from : Sales = . XXX Commission & Fees XXX Interest Received XXX Cash Payment for : Purchases Ha Payments to and for employees KX Operating Expenses. XXX Interest Payments XXX Direct Taxes Paid XXX ASN Net Cash Flow from Operating ActivitiesCash Flow from Operating Activities Amount Amount ARs.) (Rs) Net Profit before Tax XXX Adjustment for : Depreciation XXX Loss on Sale ofEited Assets — Lass on revaluation eee ae Operating Profit before Working Capital Changes XXX Adjustment* for ; Trade and other Receivables Inventories or Stocks XXX Trade Payments or (Creditors and B/P) XXX XXX Cash Generated from Operations XXX Interest Paid XXX XXX Taxes Paid sae Net Cash Flow from Operating Activities XXXPreparing the Statement of Cash Flows Indirect and Direct Methods Wego ul ied Companies favor the indirect method for two reasons: Seas 1, It is easier and less costly Indirect Method to prepare, and 2. It focuses on the differences between net income and net cash flow 1.2% Direct Method from operating activities,Book Approach ‘Net Income ee '+Depreciation Operating Expenses Cost of Goods Sold + Depreciation* +Salvage Proceeds petting Expense p | Gain Tax Investin; Taxable Income SY | Working Inv Cap . Tecunie Tae Working Cap Recovery ‘Net Income a - -Repayment of Principal Financing * Assumes Tax Depreciation = Book Depreciation Thus, no deferred taxesFormat for Cash Flow Statement Cash flows from operating activities (List of individual items) XX 2 activities, XXX Net cash provided (used) by operat Cash flows from investing activities (List of individual inflows and outflows) XX Net cash provided (used) by investing activities Cash flows from financing activities (List of individual inflows and outflows) XX Net cash provided (used) by financing acti Net increase (decrease) in cash Cash at beginning of period Cash at end of period Noneash investing and fin (List of individual noncash transactions)End of Presentation Jhb slisinosolniskailakakiokak Thank You