CASH FLOW STATEMENT, ITS ACCOUNTING AND STRUCTURE

Introduction:
In the presence of Balance sheet and profit and loss account statements why there is a need of cash flow statement? This is an interesting question and it is also related with the historical background of cash flow statement. The both stated financial statements i.e. Balance Sheet and income statement are prepared on accrual basis while cash flow statement is made on the actual cash receipts and cash payments. All these statements are prepared with the same accounting data but the purposes of all these statements are different. Cash flow statement is an effective tool to measure the effective management of working capital by any entity. e.g. If the cash flow from operating activities are equal and greater than the profit of that period then it is clear indication that the working capital is adequately and well managed if the results are adverse then the management must have to take some serious and important steps for the improvement of operating activities. The cash is generated from the revenue of the company this cash is used in running different operations of the business. Cash flow is used to determine and describe the entity financial success, the activities and the future cash flows. Cash flow statement is an important part of financial statements. A well formed structure is used not to consider only financial ratios but also make a comparison between different companies. In cash flow statement accrual accounting is not used. Cash flow statement is important for decision making. e.g. Investor wants to know about future cash flow of its investment.

Definitions:
Cash flow Statement, statement of cash flow or fund flow statement is a statement which shows the actual cash in and cash out of the business and also the nature of the cash and cash equivalents for the particular period of time. Cash In Cash Out Cash equivalent : Cash coming into the business. : Cash Out going to the business. : Cash equivalents are short term investments easily Converted into cash such as securities, treasury bills etc.

 Cash flow statement or statement of cash flow is the financial statement which shows how changes in balance sheet account and income statement account affect the cash and cash equivalents. Cash Flow Statement mainly comprises three parts. These important parts are: Cash from operating activities. (CFO) Cash from investing activities. (CFI) Cash from financing activities. (CFF) Cash flow from operating activities come first then investing and at the last financing activities is recorded. Cash from operating activities (CFO): These include production sales and delivery of goods and services, receiving cash from customers and making payment to raw material advertising wages and interest. Under IAS-7 operating activities includes: Receipt against sale of services and goods. Buying merchandise. Payments to employees. Payment to suppliers. Interest received on loan.

Cash from Investing Activities: Investing activities includes purchase and sale of long term assets and securities and also making the collection of loans. Some examples of investing activities are: Long term investments. Land. Building. Equipments. etc. Cash from Financing Activities: Activities which impact long term liabilities and equity of the firms are the financing activities. Dividend paid is also including in this category.

Some examples of financing activities are: Bond payables. Notes payables. Common stock. Preferred stock etc.

Historical Background:
FASB (Financial Accounting Standard Board) in 1971, under GAAP (Generally Accepted Accounting Principles) made a compulsory to tell the stake holders about the source and the uses of funds in form of report which was not particularly named. FASB in 1987, according to statement No. 95 (FAS 95) made it compulsory that companies issue cash flow statement. IASB (International Accounting Standard Board) in 1992, issue a standard with the name of IAS-7 as cash flow statement. In 1994, IASB made it mandated to firms for issue cash flow statement with other financial reports.

Objective of the study:

The study and research purpose is to: The structure of cash flow statement. The accounting method of cash flow statement. To under stand the operating, financing and investing activities. Interested group of persons. Concerns of cash flow statement.

Interested group of persons:

The interested groups of people related with cash flow statement are: Shareholders. Suppliers. Banks. Analysts. Potential Lenders, investors and employees. Accounting personnel who wants to know whether the company has Sufficient cash balance to pay the payrolls and the immediate expenses.

Concerns of Cash Flow Statement:

Cash flow statement has many important concerns which are as: Provide toll to evaluate the liquidity, solvency and the financial stability of the business. Provide detail of total cash inflow and total cash outflow which is not provided by income statement and balance sheet. The qualitative aspect of the profit. Mean what portion of profit represents cash inflows. Provide the data to calculate the internal rate of return. Users can under stand that the business expansion is due to external funds financed or due to cash generated from operating activities. Evaluate the business position to pay the dividend, staff salaries and the supplier invoices. Cash flow statement is the indicator of future cash flow.

Problem Statement:
The problem statement of the my research topic is Cash flow Statement, its Accounting and Structure. Research Question: The research question related with thesis is as: The total cash flow from all the activities is equal to the net cash balance in hand?