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with banks. Cash equivalents, as defined in AS-3 are short term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity. The criterion used to determine the short term life of an investment to qualify for cash equivalent is a maturity period of three months or less.
classified into three broad activities Operating activities which are principal revenue producing activities. Investing activities which involve acquisition and disposal of long-term assets and other investments not included in cash equivalents. Financing activities which are activities that result in changes in the size and composition of the owners capital, preference share capital and borrowings of the enterprise.
Cash Inflow..
Operating Activities Investing Activities Financing Activities
Cash Outflow.
Operating Activities Examples of Cash Outflow Payments to suppliers for goods and services Cash payments to and on behalf of employees Cash payments for income tax Investing Activities Examples of Cash Outflow Cash payments to acquire fixed assets, shares and other securities Cash advances and loans given to third parties. Financing Activities Examples of cash outflow Repayment of loan Repurchase of shares Interest paid Dividend paid Dividend tax paid
liabilities Cash Outflow (Deduct) Decrease in Current assets and Increase in Current Liabilities Cash Inflow (Add)
Conti
Foreign currency transactions : Cash flow arising from transactions
in a foreign currency should be recorded in an enterprise s reporting currency by applying the exchange rate between the reporting currency and foreign currency to the foreign currency amount at the date of the cash flow or at the rate that approximates the actual rate. Unrealized gains and losses arising from changes in foreign exchange rate are not cash flows. But the effect of such change on cash and cash equivalents held or due in a foreign currency is reported in cash flow separately in order to reconcile cash and cash equivalents at the beginning and end of the year.