CASH FLOW STATEMENT

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CASH FLOWSTATEMENT
Perfection does not exist. To understand this is
the triumph of human intelligence to expect to
possess it is the most dangerous kind of madness.
- Alfred de Musset

• Dr. Jatin PancholiEmail email_at_jatinpancholi.com
• Website http//www.jatinpancholi.com

Dr. Jatin Pancholi has compiled and prepared this
teaching note from various sources, as the basis
for class discussion rather than to illustrate
either effective or ineffective handling of a
management situation. The handling of a
management situation requires personal guidance
by a professional. To obtain copies, request
permission to reproduce and to send feedback,
please send email to email_at_jatinpancholi.com.
Visit website http//www.jatinpancholi.com. Those
wishing to co-author next edition of this handout
are requested to contact via email.
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CASH FLOW STATEMENT

• CF Statement is a flow statement.
• CFS indicates changes that took place between tow
  successive Balance Sheets.
• The statement of cash flows provides a thorough
  explanation of the changes that occurred in a
  firms cash balance during the entire accounting
  period.

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CFS

• The statement of cash flows reports cash receipts
  and payments of a company during a given period
  for operating, financing, and investing
  activities.
• Cash includes cash and cash equivalents.

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Why CFS?

• Balance Sheet PL A/c insufficient.
• It shows the relationship of net income to
  changes in cash balances.
• It reports past cash flows as an aid to
• Predicting future cash flows
• Evaluating the way management generates and uses
  cash
• Determining a companys ability to pay interest
  and dividends and to pay debts when they are due
• It identifies changes in the mix of productive
  assets.

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Why CFS? . . .

• The statement of cash flows, along with the
  income statement, explains why balance sheet
  items have changed during the period.
• Legal rules.

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Why CFS?

• The relationship among the balance sheet, income
  statement, and statement of cash flows

Balance Sheet December 31, 19X1
Balance Sheet December 31, 19X0
Income Statement
Statement of Cash Flows
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Activities Affecting Cash

• Operating activities - transactions that affect
  the income statement
• Investing activities - activities that involve
  (1) providing and collecting cash as a lender or
  as an owner of securities and (2) acquiring and
  disposing of plant, property, equipment, and
  other long-term productive assets

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Activities Affecting Cash . . .

• Financing activities - activities that include
  obtaining resources as a borrower or issuer of
  securities and repaying creditors and owners

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Operating Activities

• Cash inflows
• Cash Receipts from sale of goods/rendering of
  services
• Cash Received from royalties, fees, commission,
  etc.
• Other operating receipts

• Cash outflows
• Cash payments to suppliers for Goods/services
• Cash payments to employees
• Interest and taxes paid
• Other operating cash payments

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Investing Activities

• Cash outflows
• Purchase of property, plant, equipment
• Purchase of securities that are not cash
  equivalents
• Making loans

• Cash inflows
• Sale of property, plant, and equipment
• Sale of securities that are not cash equivalents
• Receipt of loan repayments

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Financing Activities

• Cash inflows
• Borrowing cash from creditors
• Issuing equity shares
• Issuing debt securities

• Cash outflows
• Repayment of amounts borrowed
• Repurchase of equity shares
• Payment of dividends

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Thank You
Happiness is a positive cash flow. (Fred Adler -
Venture capitalist)
Dr. Jatin PancholiEmail email_at_jatinpancholi.com
Website http//www.jatinpancholi.com

• Dr. Jatin Pancholi has compiled and prepared this
  teaching note from various sources, as the basis
  for class discussion rather than to illustrate
  either effective or ineffective handling of a
  management situation. The handling of a
  management situation requires personal guidance
  by a professional. To obtain copies, request
  permission to reproduce and to send feedback,
  please send email to email_at_jatinpancholi.com.
  Visit website http//www.jatinpancholi.com. Those
  wishing to co-author next edition of this handout
  are requested to contact via email.

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