What is Cash Flow Statement?
Cash Flow Statement shows flow of cash /cash equivalents into or outside the business. It is a summary of receipts and payments of cash/ cash equivalents for a particular period of time. This statement shows the incoming and outgoing cash from various activities of a company. This statement serves as additional information to the internal and external users.
Cash Flow Statement provides useful information about cash inflow and outflow of a company during a financial year under various heads:
- Operating activities
- Investing activities
- Financing activities
Operating Activities
These activities are the company’s revenue-generating activities and these activities are primary or main activities of a company.
Various cash inflows from operating activities are as follows:
- Cash/cash equivalents received from the sale of goods or rendering any services.
- Cash received from debtors
- Cash received as commission, royalties, and other revenues.
Various cash outflows from operating activities are as follows:
- Cash Payment to suppliers of goods and services.
- Cash Payment to creditors.
- Cash Payment for salary, wages, taxes, interest, etc.
Investing activities
Investing activities include the purchase and sale of long-term assets or fixed assets such as machinery, land, building, furniture, equipment, etc. These are long-term investments. These are the expenditures made for generating future income.
Various cash inflows from investing activities are:
- Cash receipts from sale/ disposal of fixed assets.
- Cash receipts from disposal of shares, warrants, or any other debt instruments.
- Interest received in cash from any loans and advances
- Dividend received from any investments.
Various cash outflows from investing activities are:
- Cash Payment for purchase of any fixed assets.
- Cash Payment to purchase/subscribe any shares, warrants, or any debt instruments.
Financing activities
Financing activities relate to long-term funds or the capital of a company. It includes issuing company shares, debentures, etc, or raising fund through bank loans and then repaying it, etc.
Various cash inflows from financing activities are:
- Cash received from issuing shares of a company (either equity or preference shares.) (Cash is received when public subscribe to the shares of the company.)
- Cash received from issuing debentures.
- Cash received from loans taken from banks or any financial institutions. (Long-term or Short-term borrowings)
Various cash outflows from financing activities are:
- Repayment of borrowed amount (from loans)
- Interest Payment on debentures and loans and advances
Dividend Payment on shares subscribed by the public.
The objectives of Cash Flow Statement
- The primary objective of cash flow statement is to provide useful information about cash flows (i.e., inflow and outflow).
- This information is useful in providing users of financial statements (like shareholders, tax authority, Government, creditors etc.) to know the ability of company to generate cash or cash equivalents.
- Cash flow statements helps in financial decisions.
- It helps in projecting future investing and financing plans of a company.
- It helps in managing cash in a best possible manner.
Format of Cash Flow Statement
| HARI ENTERPRISES | |
|---|---|
| Cash Flow Statement for the year ending 31st March 2020 | |
| Particulars | Amount (Rs.) |
| Cash at beginning of year | 50,000 |
| Operating Activities | |
| Cash Receipts: | |
| Recieved from Debtors | 12,000 |
| Sale of Goods | 20000 |
| Commission Recieved | 15000 |
| Cash Payment: | |
| Purchase of Goods | (15000) |
| Salary Payment | (15000) |
| Income Tax | (5000) |
| Administrative Expenses | (1500) |
| Net Cash Flow from Operating activities | 60,500 |
| Investing Activities | |
| Cash Receipts: | |
| Sale of Land (Fixed Asset) | 1,00,000 |
| Interest Recieved (from loan given) | 5000 |
| Sales of investment securities | 2000 |
| Cash Payment: | |
| Purchase of furniture (fixed Asset) | (15,000) |
| Purchase of Share of Birla Company | (30,000) |
| Net Cash Flow from Investing Activities | 62,000 |
| Financing Activities | |
| Cash Receipts: | |
| Issuance of Shares | 1,05,000 |
| Borrowings from Banks | 50,000 |
| Issuance of debentures | 20,000 |
| Cash Payment: | |
| Canara Bank loan repaid | (50,000) |
| Dividends paid | (15,600) |
| Interest on loan paid | (5000) |
| Net Cash Flow from Financing Activities | 1,04,400 |
| Net Increase in Cash | 2,26,900 |
