CASH FLOW STATEMENT

Cash: Cash in hand and Cash at bank

Cash Equivalent: Current or Short Term Investment; Marketable

Securities such as: -

1. Treasury Bills
2. Commercial Papers
3. Bank Over-Draft
4. Cash Credit
5. Cheques & Drafts in hand

Classification of Balance Sheet:-

NON-CURRENT EQUITY AND LIABILITY

Share Capital:

Preference Share Capital

Equity Share Capital

Reserve and Surplus:

Capital Reserve

Capital Redemption Reserve

Securities Premium

General Reserve

Debenture Redemption Reserve

Profit and Loss Balance – Profit

Other Reserves

Debentures

Term Loans
Others

CURRENT LIABILITY

Creditors/Account Payable

Bills Payable

Short-Term Loans

Bank Overdraft

Outstanding Expenses

Income Received in Advance

Short Term Provisions

Other Current Liabilities

NON-CURRENT ASSETS

Fixed Assets – Tangible:

Land

Building

Plant and Machinery

Furniture and Fittings

Fixed Assets – Intangible:

Goodwill

Patents, Trade Marks, Copy Rights

Long Term or Non-Current Investment

Unamortized:

Preliminary Expenses

Discount on Issues of shares & Debentures

Share/Debentures Issue Expenses

Underwriting Commission

CURRENT ASSETS:

Short term or Current investment

Debtors/ Accounts Receivable/ Book Debts

Bills Receivable

Closing Stock or Inventory

Prepaid Expenses

Accrued Income

Marketable Securities

Cash at bank

Cash in Hand

CASH FLOWS

Cash flows are inflows and outflows of cash and cash equivalent.

Classification of Cash Flows

Cash flows from Operating Activates

Cash flows from investing Activities

Cash flows from Financing Activities

 CASH FLOWS FROM OPERATING ACTIVITIES

Operating activities of the business mean transactions pertaining
to purchase and sale of goods and services arising out from
operating activities.
Cash Inflows: -

1. Cash sales
2. Cash Received from Debtors
3. Royalty, fees and commission received
4. Insurance claim received for loss of stock

Cash Outflows: -

1. Cash Purchase
2. Cash Paid to Creditors
3. Payment of Operating Expenses such as wages, salaries etc.
4. Payment of Income tax.

ADJUSTMENT FOR NON-CASH ITEMS AND NON-OPERATING

INCOMES

Non-cash Items: Reduces the net profit but do not affect the
cash. These items should be added back to net profits which are
as follows:-

1. Depreciation

2. Amortization of Fictitious or Intangible Assets.

 Goodwill Written off
 Preliminary Expenses written off
 Discount on Issue of shares and Debentures
 Trade Marks, Patent Rights, Copy right Written off
 Deferred Revenue Expenditure Written off
 Dr Balance of Profit and loss A/c written off

3. Non-Operating Items: Debited to Profit and Loss Account.

Should be added back to net profit. These are as follows: -
1. Loss on sale of fixed assets.
2. Appropriation of profits:-
 General Reserve.
 Dividend Equalization fund.
  Sinking fund or Debenture Redemption Fund.
 Reserve for Contingencies etc.
3. Creation of Provisions:-
 Proposed Divided
 Provision for Taxation
 Provision for Legal Damages
 Provision for Bad Debts
 Provision for Discount on Debtors.

Non-Operating Incomes: These items should be deducted

from Net Profit to compute cash from operating incomes.
Following are the main non-operating incomes:-
1. Profit on sale of fixed Asset
2. Dividend received or receivable.
3. Refund of tax
4. Re-transfer of excess surplus and provisions to P/L A/c.
5. Increase in the value of fixed assets.
6. Provision for discount on creditors.
 CALCULATION OF OPERATING PROFIT BEFORE WORKING
CAPITAL CHANGE

Particulars Details Tota

$ l
$
Net Profit Before tax and Extra-Ordinary Item:
Net Profit after Tax -
Add: Provision for Tax Made during the year -
Interim Dividend paid during the year -
Transfer of General Reserve/Reserve Fund/Sinking -Fund
Proposed Dividend made during the year-
Extra Ordinary Items (if any) debited to P/L A/c -
Less: Refund of tax credited to P/L A/c(-)
Extra Ordinary items (if any) credited to P/L A/c(-)
Add: Adjustment for Non-cash and Non-operating _____
items:
Depreciation Provided on Fixed Assets
Goodwill/Patent/Trade Mark Amortized -
Preliminary Expenses/Share issue Expenses/Debenture -
discount/Underwriting expenses written off (-)
Loss on sale of fixed Assets -
Provision for Doubtful Debts -
Less: Adjustments for Non-Operating Incomes:
Profit on sale of fixed Asset/investment
Excess provision made for Depreciation/ doubtful Debts (-)
Interest and Divided Received (-)
Rent Received
Provision for Discount on Creditors (-)
Operating Profit Before Working Capital Changes (-)
(-)
- ____

 Profit before tax = Transfer of general reserve or any other

reserve during the current year + provision for income tax
made during the current year + proposed divided made
during the current year or dividend /interim dividend paid to
shareholders during the year.

ADJUSTMENT FOR CHANGES IN CURRENT ASSETS AND

CURRENT LIABILITIES

1. Add in Operating Profit before working capital changes:

Decrease in Current Assets and Increase in Current
Liabilities. They should be added to operating profit.
2. Less in Operating Profit before working capital changes:
Increase in Current Assets and Decrease in Current
Liabilities. They should be deducted from operating profits.

 Change in Cash, Bank balance, Bank Overdraft, Short-term

investment such as treasury bills, commercial papers,
marketable securities etc. should not be taken into
consideration at all.
 Bank borrowings are generally considered to be financing
activities.
CALCULTION OF CASH GENERATED FROM OPERATING
ACTIVITIES

Particulars Details Total

Operating Profit before Working Capital Changes
in :
Add: Decrease in Current Assets and
Increase in Current Liabilities:
 Debtors/Bills Receivable/Stock/Prepaid
Expenses/ Accrued Incomes etc.
 Creditors /Bills Payable/Outstanding
Expenses/Unearned Incomes etc.

Less: Increase in Current Assets and

Decrease in Current Liabilities:
 Debtors/Bills Receivable/ Stock/ Prepaid
Expenses/Accrued Incomes etc. (----)
 Creditors/Bills Payable/Outstanding
Expenses/ Unearned Incomes etc.
Cash Generated or Used from Operating
Activities (----)
_____
______

 In the absence of other information, P/L balance will be

treated as operating profit before working capital changes.
 Any loan (long term, medium term and short term) is
financing activities.
 Purchased goodwill or increase in goodwill is to be shown
under investing activities.
 Cash credit is a part of cash and cash equivalents.
 CASH FLOWS FROM OPERATING ACTIVITIES
PARTICULARS Details Total
Cash Flows from Operating Activities:
Profit Before Tax and extra-ordinary Items
Adjustment for:
Add: Depreciation Provided On Fixed Assets
Preliminary Expenses/Discount on issue of shares or
Debentures
Miscellaneous Expenses Written off
Good Will/Trade Mark/Patents written off
Loss on sale of fixed assets
Interest Expense

Less: Profit on sale of Fixed Assets or Non-current (-----)

investments
Interest income (-----)
Dividend Income (-----)
Rental Income (-----)
Operating profit before working Capital Changes
Changes in:
Add: Decrease in current assets
Increases in current liabilities

(-----)
Less: Increase in current assets (-----)
Decrease in current liabilities
Cash Generated from Operating Activities
(-----)
Less: Direct Taxes or income tax paid after adjusting of
refund of tax
Cash flow from operating activities before Extra-ordinary
items
+or- extra-Ordinary Items (-----)
Net cash from operating Activities

CALCULATION OF CASH FLOW FROM INVESTING

ACTIVITIES
Investing activities include transaction and events that involve
the purchase and sale of non-current or long term assets
(example: land, computer, machinery etc) not held for resale and
other investment not include in cash equivalent.

Investing Activities: -

Cash Inflow Activities:

1. Cash sale of fixed assets

2. Cash sale of investment
3. Interest received on investment
4. Dividend received on investment
5. Insurance claim received for loss of fixed assets.

Cash Outflow Activities:

 1. Cash purchase of fixed assets
2. Cash Purchase of investment
3. Payment of capital gain tax.

 Increase in the balance of fixed assets means purchase of

fixed assets, hence it is an outflow of cash whereas decrease
in the balance of fixed assets means sale of fixed assets.

CASH FLOW STATEMENT

Particulars Details Total

Cash Flow from investing activities:
Purchase of fixed assets (------)
Sale of fixed assets
Purchase of non-current investment(long term (-----)
investment)
Sale of non-current investment (long term investment)
Interest Received
Dividend Received
Insurance claim received for loss of fixed assets
Capital gain tax on income for sale of non-current
assets(long term assets)
Net cash from investing activities
(-----)

CALCULATION OF CASH FLOW FROM FINANCING

ACTIVITIES
Financing activities are activities that result in change
in the size and composition of owner’s capital and
borrowings of the entity.
Financing Activities:-
Cash Inflows:
1. Issue of shares or other similar instruments for
cash including premium or excluding discount.
2. Issue of debentures, notes and bonds for cash
including premium or excluded discount.
3. Cash proceeds from public deposits.
4. Raising loans, mortgages and other whether
short term or medium term or long-term
borrowings.
Cash Outflow:
1. Buy back of equity shares
2. Redemption of preference shares including
premium.
3. Redemption of debentures including premium.
4. Repayment of loans, such as bank loan, mortgages
and other borrowings whether short-term or
medium term or long term borrowings.
5. Payment of interest on loan, debentures and public
deposits.
6. Payment of dividend and corporate dividend tax.
7. Share issue expenses paid off
 Financing activities will ignore the following non-
cash transaction:-
 Issue of bonus shares.
 Conversion of debentures into shares or new
debentures.
 Issue of shares against purchase of fixed assets.
  Payment of dividend and corporate dividend tax
and interest paid are included in financing
activities.
CASH FLOW FROM FINANCING ACTIVITIES
Particulars Details Total

Cash flow from Financing Activities:

Proceeds from issue of share capital
Proceeds from long term borrowings
Repayment of long term borrowings/
Preference shares (-----)

Interest Paid
Dividend Paid (-----)
Corporate Dividend Tax Paid (-----)
(-----)
Net cash from financing Activities

CASH FLOW STATEMENT

FOR THE YEAR ENDED_____
Sr. Particulars Details Total
No.
A Cash flow from Operating Activities:
Profit Before tax and extraordinary items:
Profit after tax ---
Add: Provision for tax ---
Proposed Dividend ---
Transfer to General Reserve ---
-----
Add: Adjustment for Non-cash & non-
operating items:
Depreciation
Miscellaneous Expenses Written off -----
Goodwill/Patents/Trade Marks Written off -----
Loss on sale of Fixed Assets -----
Interest Expense
-----
Less: Adjustment for Non-cash & non- -----
operating incomes:
Profit on sale of fixed assets
Interest income
Rental income (---)
Dividend income (---)
(---)
Operating Profit before working capital (---)
changes
-----
Changes in:
Add: Decrease in Current Assets
Increase in Current Liabilities
----
Less: Increase in Current assets ----
Decrease in Current Liabilities
(---)

Cash generated from operating (---)

activities
Direct Taxes or income tax paid(Refund of -----
tax)
Cash flow before extra-ordinary items (---)
(+)or(-) extra-ordinary items
-----
 Net cash from Operating Activities -----

Cash flow from Investing Activities: ----- ----

Purchase of fixed assets
B Sale of fixed assets
Purchase of non-current investment (---)
Sale of non-current investment ---
Interest received (---)
Dividend received ---
Capital gain tax on income from sale of long ---
term investment ---
(---)
Net cash from investing activities

Cash flow from Financing Activities: --- ----

Proceeds from issue of shares capital
C Proceeds from issue of long term borrowings
Repayment of long term borrowings ---
Interest paid ---
Dividend paid
Tax on Distributed Profits (or corporate (---)
dividend tax) (---)
(---)
Net cash from financing activities (---)

Net Increase or Decrease in cash and --- ----

cash equivalents(A+B+C)

D Cash and cash equivalent opening ----

balance

E Cash and Cash Equivalents Closing ----

Balance

F ----
After that net cash of Part A, B & C will be added which represents
the net income or decrease of cash and cash equivalents during
the year. Cash and cash equivalent in the beginning of the period
is added to represented balance i.e. A+B+C and the total will be
equal to cash and cash equivalents at the end of the period and
therefore the accuracy of the solution stands automatically
verified.

 ACCOUNTING TREATMENT OF SPECIAL ASPECTS

PROVISION FOR INCOME TAX

When provision for income tax appearing on the equity and

liabilities side under notes to accounts to the balance sheet,
previous year’s provision for income tax is assumed have been
paid during the current year; therefore, it should be deducted
from cash generated from operating activities while current year’s
provision for tax is treated as a provision because it will be paid in
the next year and is added back to current year’s profit because
‘profit before taxation’ is to be shown under the heading ‘cash
flows from operating activities’.