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1. Cash Flow Statements

2. Index Cash Flow Statements Cash inflows and Outflows Types of Business Activities Objectives of Cash Flow Statements Limitations of Cash Flow Statements Difference between Cash Flow Statements and Balance sheet Types of Businesses Extraordinary Tiems Format of Cash Flow Statements Adjustments in Cash Flow Statements

3. Cash Flow Statements CASH FLOW STATEMENT is a statement that shows the cash flows i.e., inflow and outflow of Cash and Cash equivalents during the accounting period (usually between two balance sheet dates) from operating , investing and financing activities . In other words , cash flow Statement is a statement that gives information of change in Cash and Cash equivalents of an enterprise during the accounting period under Operating , Investing and Financing Activities. Cash flow statement is prepared as per accounting Standard-3 ( Revised ) .

4. Cash Inflows and Outflows Transactions that increase Cash and cash equivalents are INFLOWS of cash and cash equivalences and transactions that decrease it are the OUTFLOWS of cash and Cash equivalents . Cash and Cash equivalents includes Cash in hand , Bank Balance , Demand Deposits with Bank , Marketable Securities , etc. Current Investments are taken as Marketable Securities unless stated to be Non-marketable Securities . Hence are included in Cash and cash Equivalents.

5. Types of Business Activities 03 02 01 Operating Activities Investing Activities Financing Activities

6. Types of Business Activities

7. The cash flow statement has three sections: Cash flow from operating activities (CFO) indicates the amount of cash that a company brings in from its regular business activities or operations. This section includes accounts receivable, accounts payable, amortization, depreciation, and other items. Cash flow from investing (CFI) reflects a company’s purchases and sales of capital assets. CFI reports the aggregate change in the business cash position as a result of profits and losses from investments in items like plant and equipment. These items are considered long-term investments in the business. Cash flow from financing activities (CFF) measures the movement of cash between a firm and its owners, investors, and creditors. This report shows the net flow of funds used to run the company, including debt, equity, and dividends.

8. Objectives of Cash Flow Statements Provide information : Show cash inflows and outflows from operating, investing, and financing activities  Determine net changes : Calculate the net changes in cash and cash equivalents  Show liquidity, solvency, and financial flexibility : Provide information about a company's ability to change cash flows in the future  Predict future cash flows : Help predict future cash flows and borrowing needs  Show how well a business uses cash : Show how well a business uses its cash and how healthy its operations are.

9. Non-cash transactions Cash flow statements don't include non-cash transactions like depreciation, amortization, or changes in working capital. These non-cash items can have a significant impact on a business's financial health.  Historical data Cash flow statements primarily reflect past cash flows, which may not accurately represent current or future financial positions.  Lack of comprehensive analysis Cash flow statements don't provide detailed information about the sources and uses of cash beyond certain categories. This makes it difficult to identify the causes of changes in cash flow.  Subjective classification The classification of cash flows as operating, investing, or financing activities is subjective and can vary from business to business.  Not a substitute for an income statement A cash flow statement is not a substitute for a business's income statement.  Limited net income or profitability assessment A cash flow statement doesn't directly show or measure net income or profitability.  Limitations of Cash Flow Statements

10. Difference between The main difference between a balance sheet and a cash flow statement (CFS) is the type of financial information they present and their focus:  Balance sheet Provides a snapshot of a company's financial position at a specific point in time. It lists the company's assets, liabilities, and equity.  Cash flow statement Summarizes a company's cash inflows and outflows over a specific period. It shows how a company uses its cash to pay debt, fund investments, and cover operating expenses.  Cash Flow Statements and Balance Sheet

11. Sole proprietorship : A traditional business structure where the owner controls the business and is liable for all debts  Partnership : A business started by two or more people who contribute capital, property, or experience in exchange for a share of the profits or losses  Corporation : A complex structure that is subject to state laws and corporate income tax  S corporation : A type of corporation that allows profits and losses to be transferred to individual tax returns  Limited Liability Company (LLC) : A hybrid of a corporation and a partnership, with some qualities of both. LLCs are popular for small businesses because the owners have limited liability for the business's debts and actions  Types of Businesses

12. In cash flow statements, extraordinary items are not separately classified. Instead, they are typically included in the operating, investing, or financing activities sections, depending on the nature of the extraordinary item.  Natural Disasters : Significant events like earthquakes, hurricanes, or floods that cause substantial damage to company property and operations. Legal Settlements : Large settlements or judgments resulting from litigation cases that are unusual and not part of the company's ongoing legal proceedings. Gains or Losses from Asset Sales : Unusual gains or losses from the sale of long-term assets, investments, or subsidiaries that are outside the company's usual operations. Write-downs of Assets : Write-downs of assets due to impairment, obsolescence, or unexpected changes in value that are not expected to occur regularly. Extraordinary Items in Cash Flow Statements

13. Format of Cash Flow Statements

14. Adjustments in Cash Flow Statements

15. A D J U S T MEN T S F O R NON C ASH TRANSACTIONS D e p r e c i a t i o n / A m o rt i z a t i o n D e du c t e d i n p r o f i t bu t n o t a f f e c t i n g c a s h . Adjusted in cash flow statement to reflect actual cash spent. I m p a i r m e n t s a n d W r i t e - o f f s : - N o n c a s h c h a r g e s t h a t n e e ds t o b e ad j u s t e d. Provisions - Adjustments for future liabilities not yet incurred.

16. W O R K ING C A P I T A L A D J U S T M E N T S A c co u n t s R e c e i v a b l e ( A R ) Increase in AR - Cash Outflow (more credit sales , less cash received). Decrease in AR – Cash inflow (more cash received). Inventory Increase in Inventory - Cash Outflow (more cash spent on stock). Decrease in Inventory - Cash Inflow (cash released from inventory sales). A c c o u n t s Pa y a b l e ( A P ) I n c r e a s e i n A P – C a sh I n f l o w ( d e l a y e d p a y m e n ts ) . Decrease in AP – Cash Outflow (paying off Creditors).

17. C A S H F L O W A D J U S T M E N T S IN O P ER A T ING ACTIVITIES O p e r a t i n g C a s h F l o w ( O C F) - Adjustments to reconcile net income to net operating Cash Flow. E x a m p l e s o f A d j u s t m e nt s: Changes in working capital accounts (AR , AP , Inventory). D e p r e c i a t i o n a n d A m o r t i z a t i o n . N o n c a s h g a i n s o r l o ss e s ( e . g . - A ss e t S a l e s ) .

18. C A S H F L O W A D J U S T M E N T S IN IN V E S T ING A N D F I N A N C ING A C T I V I TI E S I n v e s t i n g A c t i v iti e s P u r c h a se o r S a l e o f F i x e d A ss e t s. A d j u st m e n t s f o r g a i n s / l o ss e s o n a ss e t d i s p o s a l s . F i n a n c i n g A c t i v i ti e s I n s u r a n c e o f D e b t o r E q u i t y . R e p a y m e n t o f D e b t. D i v i d en d P a y m e n t s .

19. E X A M P L ES O F C A S H F L O W A D J U S T M EN T S ( IN D I R E C T M E T H O D ) S t a r t w it h N e t I n c o me Adjust for Non cash Items (depreciation , changes in working capital). A d d o r S u b t r a c t g a i n s o r l o ss e s o n s a l e o f a ss e ts. F i n a l O p e r a t i n g C a sh F l o w .

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