Table of Contents
What is a Cash Flow Statement?
It is also a financial statement that shows an inflow and outflow of Cash and Cash Equivalents. A Cash Flow statement is like a tool in the hands of users to know the sources and uses of Cash and Cash Equivalents of an enterprise over a period of time from various activities of an enterprise.
Methods of calculation of the Cash flow statement.
⇒ Direct Method of calculation of cash flow statement
The company receives & pays the cash in day-to-day business. The Cashbook is having an opening balance, receipts, and payments and arrives at the closing balance.
⇒ Indirect Method of calculation of cash flow statement
Usually, the cash flow statement is prepared based on the financial statements (Profit and Loss account and Balance Sheet). It forms part of the financial reporting of a company in its audited financial.
What are Cash and cash equivalent?
‘Cash’ includes cash in hand + time and demand deposits with banks, and
‘Cash equivalents’ means short-term and highly liquid investments that are readily convertible into cash and which are subject to an insignificant risk of changes in value. An investment normally qualifies as cash equivalents only when it has a short maturity of around 12 months, normally termed as Current Investments.
Activities in preparation of Cash Flow Statement :
| Activities | Inflow | Outflow |
| Operating Activities
|
Proceeds from the sale of Goods & Services | Payment of employee benefit expenses |
| Receipts from Royalty, Fees, Commission, and other Revenue | Purchase of inventory from suppliers | |
| Payment of operating expenses | ||
| Payment of Taxes | ||
| Investing Activities | Sale of Property, Plant, Equipment, and Long Term Investment | Purchase of Property, Plean, Equipment, and non-Current Investment. |
| Receipts from interest and dividends | ||
| Financing Activities
|
Proceeds from issue of Shares (Equity & Preference) | Redemption of Preference Shares or Buyback of Equity Shares |
| Proceeds from issuance of Debts / Bonds | Redemption of Debentures or payment of the long term debts | |
| Procurement of Loans | Payment of Dividend and Interest |
In this article, we are looking into the easy method of calculation of Cash flow statement in an indirect method for present in Financials.
Structure of Cash Flow Statement
The Structure will be as below for the calculation of cash flow. (Please refer to the .pdf file embedded below.
Opening Balance of Cash and Cash Equivalent
Add / Less :
- Cash flow from operating activities.
# Changes (Increase / decrease) in Working Capital (Note 1)
2. Cash flow from Investing Activities
3. Cash flow from Financing Activities
= Cash and Cash Equivalent (Closing Balance).
Note 1:
Calculation of Changes in Cash Flow Working Capital
The formula in the calculation of Working Capital
Adjustments for (increase) / decrease in Operating Assets – It means an increase in Assets decreases the Cash; a decrease in Assets increases Cash. – Inverse relation with Cash.
Adjustments for increase / (decrease) in Operating Liabilities – It means an increase in Liability increase the cash; a decrease in Liability decrease the Cash. – Direct relation with Cash.
Abstract of Balance Sheet calculating the changes in Working Capital..
| Liabilities | Amount | Assets | Amount |
| Trade payables | 80,000.00 | Trade receivables | 60,000.00 |
| Other current liabilities | 1,00,000.00 | Other current assets | 25,000.00 |
| Provisions for expenses | 50,000.00 | Loans and advances | 45,000.00 |
| Cash and Cash Equivalent | 1,00,000.00 | ||
| 2,30,000.00 | 2,30,000.00 |
Increase in Liability – Increases Cash Balance and vice versa.
| Liabilities | Amount | Assets | Amount |
| Trade payables | 80,000.00 | Trade receivables | 60,000.00 |
| Other current liabilities | 1,00,000.00 | Other current assets | 25,000.00 |
| Provisions for expenses | 70,000.00 | Loans and advances | 45,000.00 |
| Cash and Cash Equivalent | 1,20,000.00 | ||
| 2,50,000.00 | 2,50,000.00 |
Increase in Assets – Decreases Cash Balance and vice versa.
| Liabilities | Amount | Assets | Amount |
| Trade payables | 80,000.00 | Trade receivables | 60,000.00 |
| Other current liabilities | 1,00,000.00 | Other current assets | 25,000.00 |
| Provisions for expenses | 50,000.00 | Loans and advances | 70,000.00 |
| Cash and Cash Equivalent | 75,000.00 | ||
| 2,30,000.00 | 2,30,000.00 |
Cash Flow Statement Template :
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