‘’Cash flow statement’’

Definition:-

                   Cash flow statement is the statement in which the information is provide about the cash inflow or outflow of the cash in giving accounting period. The receipt and payment of cash is record in which statement.

Method of cash flow:-

·       Direct method

·       Indirect method

Two method is used to prepared the cash flow statement one is direct and second one is indirect method.

Types of cash flow statement:-

·       Operating activity

·       Investing activity

·       Financing activity

Direct method:-

                             This method is used to prepared the cash flow statement.

First of all I can explain the operating activity in direct method.

the cash outflow or inflow in the business due to operational work is called operating activity the cash outflow or inflow in the business due to operational work is called operating activity. In which operating activity the cash outflow and inflow id due to cash received from customer, interest or dividend received, cash paid for purchases of merchandise and cash payment for expenses

cash received from customer:-

                                   (+) decreased in A/R

Net sales

                           (-) increased in A/R

We can find cash received from customer by this method

Interest and dividend received:-

                                              (+) decreased in interest receivable

Interest revenue                                                                                                                                                                                                                                                           (-) increased in interest receivable

 

Dividend revenue             (+) decreased in dividend receivable

                                                     (-) increased in dividend receaveable

By this method we can find the interest and dividend received.

Cash paid for purchase of merchandise:-

Step 1

                                          (+) increased in inventory

Purchase= COGS

                                            (-) decresead in inventory

                                                                                          

Step 2

                                                (+) decreased in A/P

Cash paid=purchase

                                                (-) increased in A/P

We find the cash paid for merchandise of merchandise.

Cash payment for expenses:-

                                                  After deduct depreciation and other non cash expenses we will see the expense is prepaid or accrued.

                              (+) increased in prepaid/ (+) decreased in accrued

Expenses

                            (-) decreased in prepaid /(-) increased in accrued

Financing activity

                            The cash is out flow and in flow in the business  due to financing activity like borrowing or loan from bank and equity is called financing activity.

·       Borrowing

·       Loan from bank

·       Equity

Assets	Outflow    (-)	Inflow    (+)
Liability or owner equity	Inflow   (+)	Outflow    (-)

In which financing activity we treat the transaction according to this table.

Investing activity:-

                                  The cash is inflow or outflow in the business is due to purchase or sale of marketable securities or investment and sale and purchase and sale of fixed assets this activity is called investing activity.

Assets	Outflow    (-)	Inflow    (+)
Liability or owner equity	Inflow   (+)	Outflow    (-)

In which activity we can treat the transaction according to this table

 Indirect method:-

                                This method is also used in making the cash flow statement.

Operating activity:-

                                   In which activity the cash flow is due to operational activity and method is different in which indirect method .

Operating activity:-

                                  Net profit / net loss

              (Add)      depreciation /amortization

             (Add)         loss on sale of assets

             (Less)         gain on profit

           (Add/less)   increases/decreased in A/P

          (add/less)     increased/decreased in A/R

         (add/less)     increased/decreased in inventory

         (add/less)     increased/decreased in outstanding exp

         (add/less)    increased/decreased in income receivable

     (add/less)      increased/decreased in unearned income

Assets	Outflow    (-)	Inflow    (+)
Liability or owner equity	Inflow   (+)	Outflow    (-)

Note

Investing and financing activity is same which I already explain in direct method.