23 October 2016
Please tell me how to solve the cash flow statement when balance sheet of type when net increase and decrease is given in the question.
23 October 2016
Cash flow is nothing but the difference between 2 Balance Sheets. This is a key thing to understand irrespective of how the problem is presented. Whether you are given 2 Balance Sheets or just the difference, this logic should be understood.
Every difference should appear in cash flow if it has a cash implication. For example, a difference in Long Term Loan could be due to pay off. A Difference in Fixed Assets could be due to the purchase of assets.
The non-cash differences will knock off somehow without entering the cash flow. For example, if FA reduction is due to depreciation, it will not enter cash flow. The same amount will be removed from P&L decrease. So both reduction is out.
If you understand the logic, then you can solve any cash flow problem
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