Cash flow- practicals

What is cash flow statement?

It is a statement showing inflows and outflows between two balance sheet dates. In flow and outflow of cash and cash equivalents is shown under operating, investing and financing activities

3 objectives

To determine the sources of c & ce under investing operating and financing

To determine applications in c & ce. “

To determine net change in c & ce

Importance

Facilitates in ascertaining cash flow

Facilitate planning

Helps in assessing liquidity and solvency

Limitation

Non cash transaction not shown

Historical in nature

Assessment of liquidity

Under which standard is cash flow prepared

Accounting standards-3

When does cash flow arise?

When net result of a transaction in either increase or decrease in c & ce

What is cash equivalents

Short term highly liquid investments that are readily converted into known amounts of cash and which present insignificant risk of changes in their values

Examples of cash equivalents

Treasury bills

Commercial papers

Cash deposited in bank will it show inflow or outflow or no flow

No flow

How do u treat profit or loss in the sale of fixed asset

Loss on sale is added back and profit is deducted from net profit while arriving at the cash flow from operating

How do u treat depreciation

Added back to net profit while calculating cash flow from operating

Adjument for trade payable

an increase in trade payable will be added and decrease is deducted when calculating cash flow

Why is decrease in trade receivable added to cash flow form operating

Increase indicates that collection from trade receivables are more than the amount of credit sales hence it is added