A cash flow statement can be defined as “a statement which summarises sources of cash inflows and uses of cash outflows of a firm during a particular period of time, say a month or a year.” In nutshell, we can say that a cash flow statement shows the sources of cash receipts and the purposes for which payments are made, thus explaining the changes in the cash balance of the business.’’
The following are the main points of distinction:
Difference between cash flow And funds flow statements
1. Cash flow statement is more useful to management as a tool of financial analysis in shorter periods as compared to funds flow statement.
2. While preparing cash flow statement increase in current liabilities and decrease in current assets will increase the cash and vice-versa, whereas increase in current liabilities or decrease in current assets means decrease in working capital in funds flow statement.
3. Funds flow statement is concerned with changes in working capital between the two balance sheets whereas cash flow statement takes into consideration only the changes in cash position.
4. Cash flow statement deals with only actual receipts and payments of income and expenses. In order to calculate cash from operations, further adjustments are required to be made for increases and decreases in current assets and liabilites. Funds from operations are calculated by making adjusted profit and loss account taking into consideration all adjustments which are made at the end of the accounting period.
Methods of preparing cash flow statement
Cash flow statement can be prepared in statement form and account form.
Proforma of Cash Flow Statement
Cash Balance in the beginning: Rs.
Add : Cash Inflows
Cash from Operations
Issue of Shares or Bonds
Sale of Fixed Assets
Raising Loans or Accepting
Public Deposits
Refund of Income-Tax
Dividend Received
Less : Outflows of Cash
Purchase of Fixed Assets
Repayment of Loans
Redemption of Debenture
Bonds or Preference Shares
Payment of Taxes
Payment of Dividend
Purchase of Long Term Investments
Drawings
Loss of Cash by Embezzlement
Cash Lost in Operations
Cash from operations
Cash from Operations – Net Profit (or Funds from Operations) + Decrease in Current Assets and Increase in Current Liabilities–Increase in Current Assets and Decrease in Current Liabilities.
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