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CASH FLOW STATEMENT ( AS-3)

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Cash Flow Statement is a statement which expresses the reasons of

change in cash balances of business between two dates.
This statement attempts to analyze the transactions of the firm in terms of
cash.
It provides a Summary of sources of cash and uses of cash in the
organization

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Definitions
Cash
Cash comprises cash in hand and demand
deposits with banks.

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Cash Equivalents
These are -short term ,
-highly liquid investments
- that are readily convertible into known
amounts of cash
- and which are subject to an insignificant risk of
change in value.

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Cash Flows
These are inflows and outflows of Cash and
Cash equivalents.

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AS-3 lays down a format for the cash flow

statement which identifies separately the main
activities resulting in cash inflows and outflows.
The standard requires that 3 separate
categories of cash flow should be shown in the
cash flow statement-Operating Activities
-Investing Activities
-Financing Activities

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Operating Activities
Operating Activities are the principal revenue
producing activities of the enterprise and other
activities that are not investing or financing.

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Extra-ordinary items
Items which are gains or losses which arise
from events and transactions that are distinct
from the ordinary activities of the business and
which are both material and NOT expected to
recur frequently or regularly.
Example
Profit/Loss on sale of assets / investments.

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Investing Activities
Investing activities are the acquisition and
disposal of long term assets not included in
cash equivalents.

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Financing Activities
Financing activities are activities that result in
changes in the size and composition of the
owners capital ( including preference share
capital in case of a company) and borrowings of
the enterprise.

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Current Assets : are those assets which

are held for conversion into cash in the
normal course of trading.

Current Liabilities: are those liabilities

which fall due for payment within one year.

Cash Flow Statement

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A. Cash flow from Operating Activities

Net Profit before taxation and extraordinary items
****
Adjustments for:
Less :
Non-operating income (e.g. Interest income, profit on sale of
assets)
(****)
Add
non operating expense
****

Operating Profit before working capital changes

Add: Decrease in Current Assets
Increase in Current Liabilities
Less: Increase in Current Assets
Decrease in Current Liabilities
Cash generated from operations
Income Tax paid

Net Cash from operating activities

__________
****
****
****
(****)
****
(****)
****
*****

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Working Capital Changes

Add: Decrease in Current Assets
Increase in Current Liabilities
Less: Increase in Current Assets
Decrease in Current Liabilities

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A decrease in Stock or Debtors will increase

the cash inflow from operating activities.
Whereas an increase in Stock or Debtors will
decrease the cash inflow from Operating
Activities.
Similarly, a decrease in creditors reduces Cash
Balance and increase in Creditors will
effectively increase the cash available to the
enterprise.

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Cash Flow From Investing Activities

Sale of Fixed Assets

xxx
Purchase of Fixed Asset
(xxx)
Dividend Received
xxx
Interest Received
xxx
Cash flow from Investing Activities

xxx

Cash Flow From Financing Activities

Issue of Share Capital
xxx
Increase in Loan
xxx
Redemption/Repayment of Deb (xxx)
Interest Paid
(xxx)
Dividend Paid
(xxx)
Cash Flow from Financing Activities
Net Cash & Cash equivalent
+ opening Balance of Cash
Closing Balance of cash

xxx
xxx
xxx
xxx