CASH FLOW STATEMENT

BY:-Shashi Ramachandran
CASH FLOW STATEMENT shows inflows and outflows of
cash and cash equivalents due to Operating, Investing and
Financing Activities of a company during a specified period.

Classification of activities for the preparation of

Cash Flow Statement

As per AS –3 (Revised)

1. Cash Flow from Operating Activities;

2. Cash Flow from Investing Activities and
3. Cash Flow from Financial Activities.
 Cash Flow from Operating Activities
These are primarily derived from the ‘Principal Revenue- Producing Activities’ of the enterprise, other
than investing and financing activities.

‘Principal Revenue- Producing Activities’

Nature of Enterprise Business Principal Revenue-Producing Activities

NON-FINANCIAL Manufacturing Manufacturing and Selling Goods
Retail (Trading) Buying and re-selling goods
Service Selling and providing services
FINANCIAL Finance Providing Loans, Taking Loans, Dealing in Securities, etc.
 Calculation of Net Profit before Tax & Extra-Ordinary items
Particulars Amount Amount
Net Profit after tax (difference between closing balance and opening …..
balance)
Add: Proposed dividend (Previous Year) …..
Interim dividend paid during the year …..
General Reserve, DRR (difference of two years) …..
Provision for Taxation made during the year (current year) …..
Preference Dividend …..
Extra-Ordinary item if any Debited to Statement of Profit and Loss …..
(loss due to earthquake)
Less: Refund of tax credited to Statement of Profit & Loss (…..)
Extra-Ordinary item if any Credited to Statement of Profit & Loss (…..)
(Insurance proceeds from loss by fire)
Reserve transferred back to Profit & Loss (…..) (……)
NET PROFIT BEFORE TAX & EXTRA- ORDINAY ITEMS* …..…..….
.
CASH FLOW FROM OPERATING ACTIVITIES
Particulars Amount Amount
A. Cash Flow From Operating Activities
Net Profit before tax …..*
Add: Non-cash & Non-Operating Expenses
Depreciation …..
Loss on sale of fixed assets …..
Goodwill/Patents & Copyrights/ Preliminary Expenses/ Discount on issue of shares & Debentures/ Trademarks …..
written off DECREASES
Provision for doubtful debts (increase) …..
Provision for discount on debtors (increase) …..
Interest on Borrowing (Debentures & Loans) …..
Premium on redemption of debentures & shares (add only if given as an adjustment) …..
Less: Non-cash & Non-Operating Incomes
Profit on sales on fixed assets (…..)
Re-transfer of excess Provisions (…..)
Dividend received (…..)
Interest received (…..)
Premium on issue of debentures & shares (add only if given as an adjustment) (…..)
Provision for Discount on Creditors (increase) (…..) (……)
OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES ………….
Add: Increase in Current Liabilities …..
Decrease in Current Assets …..
Less: Increase in Current Assets (…..)
Decrease in Current Liabilities (…..) (……)
CASH GENERATED FROM OPERATING ACTIVITIES …………
Less: Income Tax Net* (Income Tax Paid – Tax Refund) previous year (…..)
Add/Less: Extra-ordinary items (…..) …….
CASH FLOW FROM OR (USED IN) OPERATING ACTIVITIES ..……..
 Provision for Taxation Account
Particulars ₹ Particulars ₹
By Bank Account To Balance b/d
(Tax Paid) (Given in the Balance Sheet Previous Year’s Balance) …….
…….
By Balance c/d By Statement of Profit and Loss
(Given in the Balance Sheet Current Year’s Balance) ……. (made during the year) …….

……. ……

TREATMENT OF PROVISION FOR DOUBTFUL DEBTS

(1) WHEN ALL DEBTORS ARE GOOD. If provision for doubtful debts are increasing then it will be added to net profit
before tax and extraordinary items while calculating cash flow from operating activities and if it is decreasing then will
be deducted from the net profit before tax and extraordinary items while calculating cash flow from operating activities.

(2) WHEN DEBTORS ARE NOT CONSIDERED GOOD. Provision for doubtful debts will be treated according to current
liabilities adjustments which means increase in provision for doubtful debts will be added and decrease in provision for
doubtful debts will be deducted while doing adjustments related to current assets and current liabilities.
CASH FLOW FROM INVESTING ACTIVITIES

Particulars Amount Amount

Cash received from Sale of fixed assets …..
Cash received on Sale of long-term Investment …..
Cash received from Sale of Goodwill/Patents/Trademark/Copyright …..
Rent received from Building …..
Interest received by a Non-Financial Enterprise …..
Dividend received by a Non- Financial Enterprise …..
Cash paid on purchase of Fixed Assets (…..)
Cash paid on purchase of Long-term Investment (…..)
Cash paid for the purchase of Goodwill/Patents/Trademark/Copyright (…..) (……)
Cash flow or used from investing activities …..…..…..
 FIXED ASSETS ACCOUNT
(ON WRITTEN DOWN VALUE BASIS)
Particulars ₹ Particulars ₹
To Balance b/d By Bank Account
(Given in the Balance Sheet Previous (Total Amount of Sale) …….
INVESTING
Year’s Balance) ……. ACTIVITY
To Statement of Profit and Loss By Statement of Profit and Loss
(Profit on Sale)* ……. (Depreciation during the year) ……. OPERATING
OPERATING
ACTIVITY To Bank Account By Statement of Profit and Loss ACTIVITY

(Balancing Figure being Purchase of (Loss on Sale)* …….

Fixed Assets) …….
INVESTING ACTIVITY By Balance c/d OPERATING
ACTIVITY
(Given in the Balance Sheet Current …….
Year’s Balance)
……. ……
 FIXED ASSETS ACCOUNT ON ORIGINAL COST BASIS
FIXED ASSETS ACCOUNT
Particulars ₹ Particulars ₹
To Balance b/d By Bank Account
(Given in the Balance Sheet Previous Year’s (Total Amount of Sale) …….
Balance) …….
INVESTING
To Statement of Profit and Loss By Accumulated Depreciation A/c ACTIVITY
(Profit on Sale)* ……. (Depreciation on Assets Sold) …….
To Bank Account By Statement of Profit and Loss
OPERATING
ACTIVITY (Balancing Figure being Purchase of Fixed ……. (Loss on Sale)* …….
Assets)
OPERATING
By Balance c/d ACTIVITY
INVESTING (Given in the Balance Sheet Current Year’s …….
ACTIVITY
Balance)
……. ……

ACCUMULATED DEPRECIATION ACCOUNT

Particulars ₹ Particulars ₹
To Fixed Assets A/c By Balance b/d
(Transfer of Accumulated Dep. On Assets Sold) (Given in the Balance Sheet Previous Year’s
……. Balance) …….
To Balance c/d By Statement of Profit and Loss
(Given in the Balance Sheet Previous Year’s (Balancing Figure, being Current Year’s
Balance) ……. Depreciation) ……. OPERATING
……. ……. ACTIVITY
CASH FLOW FROM FINANCING ACTIVITIES
Particulars Amount Amount
Cash received from issue of shares …..
Cash received from issue of debentures …..
Cash received from loans raised …..
Rise in Bank Overdraft/Cash Credit …..
Increase in Security Premium Reserve …..
Cash paid for the redemption of debentures ( …..)
Cash paid for the redemption of preference shares (…..)
Repayment of Loans {Short-term (Bank Overdraft and Cash Credit) and Long-term} (…..)
Payment of buy-back of Equity shares (…..)
Underwriter’s commission or brokerage paid (…..)
Interest paid on Debentures (…..)
Interest on Loans (Short term and Long term) (…..)
Final Dividend paid during the year (…..)
Interim Dividend paid during the year (…..)
Cash flow or used from financing activities (…..) …..…..….
.
Remember:
(1) In case, date of fresh issue of preference shares or debentures are not given, dates
can be assumed, and interest/dividend can be given accordingly like if assume fresh
issue at the beginning of the current year then we will have to pay interest/dividend
on the fresh issue also but if assume fresh issue at the end of the current year then
interest/dividend will not be paid on fresh issue but will be paid only on the amount
of debentures/shares at the beginning of the year.
(2) Increase in share capital due to bonus issue is not shown in Cash Flow Statement,
because the company does not received cash in this case, but it is the capitalisation
of reserves.
(3) Conversion of debentures into new debentures or shares is not shown in Cash Flow
Statement.
(4)Security Premium Reserve if increasing inflow in Financing Activities; Security
Premium Reserve if decreasing, then the reason must be mentioned for such
decrease, and then will be treated accordingly.