UNIT 4

CASH FLOW STATEMENTS

4/19/20 Prof.Santosh MK 1
CASHFLOW STATEMENT AS PER AS3 (REVISED):
The Statement of Cash Flows reports the sources of cash
inflows and cash outflow during an accounting period.
The inflows and outflows are divided into three sections
or categories based on the underlying cause or nature of
the cash flows:
• Operating Activities
• Investing Activities
• Financing Activities

4/19/20 Prof.Santosh MK 2
 Operating Activities:
Cash Inflows:
•Cash received from debtors for goods and services
•Interest and dividend received on loans and investments

Cash outflows:
•Cash payments for goods and services, merchandise
•Cash payment for wages
•Cash payment for interest to creditors
•Payments to government taxes
•Payments to others for expenses

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Investing Activities:
Cash Inflows:
•Cash sale of property, plant, equipments, other long term assets,
and intangibles
•Cash sale of investments in shares, debentures and other
securities
•Cash collection from borrowers

Cash outflows:
•Purchase of Shares, Debentures and securities of other
enterprises
•Purchase of Property ,plant, equipment and other long term
assets
•Loans given to other firms

4/19/20 Prof.Santosh MK 4
Financing Activities:
Cash Inflows:
•Proceeds from issue of shares
•Proceeds from short term and long term debt

Cash outflows:
•Repayments of loans
•Payments to owners, including cash dividends

4/19/20 Prof.Santosh MK 5
 CASHFLOW STATEMENT
AS PER AS3 (REVISED):

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 Net Profit before Tax and Extraordinary Items

ADJUSTED PROFIT & LOSS A/C

Particulars Rs. Particulars Rs.
To Provision for taxation *** By Balance b/d ***
To Proposed dividend ***
To Bal C/d ***

**** ***

4/19/20 Prof.Santosh MK 7
PROVISIONS OF AS3 ON TREATMENT OF CERTAIN ITEMS:

1.Interest and dividend:

For Financial Enterprises:

•Interest paid and received, dividend received as operating activities

•Dividend paid as financing activities.

For Other Enterprises:

•Interest and dividend received as investing activities

•Interest and Dividend paid as financing activities

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 2.Extraordinary Items:
i. Claim for loss of stock- Operating activity
ii. Claims for loss of assets- investing activities
iii. Recovery of bad debts- Operating activities
iv. Damages paid /received for breach of contract-
Operating activity
v. winning of lotteries- investing activities
vi. Cost of legal actions to protect title- investing activities

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3.Taxes on income:
i. Tax paid- operating cash outflow
ii. Provision for taxation- non cash change under operating
activity
iii. Income tax refund- cash inflow from operating activity
iv. Capital gains tax- cash outflow from investing activities
v. Corporate dividend tax- cash outflow from financing
activities.

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4.Non cash transactions:
Investing and financing transactions that do not require the
use of cash or cash equivalents are not shown in the cash
flow statement.

Examples :
i. Issue of shares or debentures for a consideration other
than cash i.e. against building,machinery,etc.
ii. Conversion of debentures into equity shares
iii. Purchase of business by issue of shares

• AS3 (Revised ) recommends that such transactions may

be disclosed under footnote to cash flow statement.

4/19/20 Prof.Santosh MK 11