Cash Flow Statement Class 12 Notes Accountancy - CBSE
Unit:4
Chapter:11
What are Cash Flow Statement ?
Cash Flow Statement
Cash Flow Statement is a statement that shows the changes in financial position of a business concern for a financial year or specific intervals of time in terms of cash and cash equivalents.
Inflows Of Cash
All transactions that lead to an increase in cash and cash equivalents are classified as inflow of cash.
Outflows Of Cash
All transactions that lead to a decrease in cash and cash equivalents are classified as outflows of cash.
Benefits of Cash Flow Statements
Cash & Cash Equivalents
- Cash comprises of cash in hand, cash at bank and demand deposits with the bank.
- Cash Equivalents comprise of ‘Short-term highly liquid investments/Short term marketable securities/Treasury Bills that can be readily convertible into known amount of cash and which are subjected to an insignificant/low risk of change in value’.
Objectives Of Cash Flow Statement
- To determine the source (receipts) of cash and cash Equivalents under operating, investing and financing activities of the enterprise.
- To determine applications (payments) of cash and cash equivalents under operating, investing and financing activities of the enterprise.
- To determine net change in cash and cash Equivalents.
Limitations Of Cash Flow Statement
- It is based on the historical cost principle.
- It is based on secondary data provided.
- There is no adherence to basic accounting principles.
- A cash flow statement is not a substitute for the Income Statement or Position Statement.
- It ignores all the non-cash transactions.
Classification Of Business Activities: The Revised Accounting Standard-3
This states that the changes in inflows and outflows of cash and cash equivalents will be classified into following three activities: (i) Cash flow from Operating Activities. (ii) Cash flow from Investing Activities. (iii) Cash flow from Financing Activities.
Format of Cash Flow Statement (Indirect Method) for the year ended...
[As per Accounting Standard-3 (Revised)]
| Particulars | ₹ | |
| I. Cash Flow from Operating activities | ||
| (A) Net profit before tax and Extraordinary items (as per working note | ||
| Adjustment for Non-cash and Non-operating items) | ||
| (B) Add : Items to be Added | ||
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| (C) Less : Items to be Deducted | ||
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| (D) Operating Profit before Working Capital Changes (A + B – C) | ... | |
| (E) Add : Decrease in Current Assets and Increase in Current Liabilities |
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| (F) Less : Increase in Current Assets and Decrease in Current Liabilities |
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| (G) Cash Generated from Operations (D + E – F) | ... | |
| (H) Less : Income tax paid (Net of Tax Refund) | ... | |
| (I) Cash Flow before Extraordinary Items | ... | |
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| (J) Cash Flow from (or Used in) Operating Activities | ... | |
| II. Cash Flow from Investing Activities | ||
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(to be included in Cash and Cash Equivalents) and Marketable Securities |
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Cash Flow from (or Used in) Investing Activities |
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| III. Cash Flow from Financing Activities | ||
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| Cash Flow from (or Used in) Financing Activities | ... | |
| IV. Net Increase/Decrease in Cash and Cash Equivalents (I + II + III) | ||
| V. Add : Cash and Cash Equivalents in the beginning of the year | ||
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| VI. Cash and Cash Equivalents at the end of the year | ||
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*Alternatively, increase/decrease in Provision for Doubtful Debts may be treated under increase/decrease in Current Liabilities. In this situation, increase/decrease in Provision for Doubtful Debts is adjusted after Operating Profit before Working Capital Changes
| Working Note: Net Profit before tax and Extraordinary Items: | ₹ | |
| Net Profit as per Statement of Profit and Loss or Difference between Closing Balance and Opening Balance of Surplus. i.e., Balance in Statement of Profit and Loss |
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| Add : Transfer to Reserves | ... | |
| Dividend Payable (Proposed Dividend of previous year) paid during the year | ... | |
| Interim Dividend paid during the year | ... | |
| Provision for Tax for the current year | ... | |
| Extraordinary Items, if any, debited to the Statement of Profit and Loss | ... | |
| Less : Extraordinary Items, if any, credited to the Statement of Profit and Loss Refund of Tax credited to the Statement of Profit and Loss |
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| Net Profit before Tax and Extraordinary Items | ... | ... |
Alternatively, Net Profit before Tax and Extraordinary Items may be shown in the Cash flow Statement itself.
Notes :
1. Amounts in brackets means amounts that are to be deducted.
2. Increase/Decrease in unpaid Interest on Debentures/Loans affect Cash Flow from Financing Activities.
3. Increase/Decrease in Unclaimed Dividend affects Cash Flow from Financing Activities.
4. Increase/Decrease in Accrued Interest on Investments affects Cash Flow from Investing Activities.
