Accountancy
This query is : Resolved
03 March 2021
When is current investment treated as investing activity in cash flow statement
06 July 2024
In a cash flow statement, current investments are generally categorized based on their liquidity and purpose. Here’s how current investments are treated under the investing activities section:
1. **Definition of Current Investments**: Current investments typically refer to short-term investments that are readily convertible into cash within one year. They are often held for trading or to meet short-term liquidity needs.
2. **Treatment in Cash Flow Statement**:
- **Cash Inflows**: Any cash received from the sale or maturity of current investments is classified as a cash inflow from investing activities. This includes the proceeds received from selling these investments.
- **Cash Outflows**: Cash paid to acquire current investments is considered a cash outflow from investing activities. This includes the initial purchase of short-term investments.
3. **Examples of Current Investments**:
- Treasury bills
- Marketable securities
- Bank deposits with maturity periods of less than one year
- Money market funds
4. **Reporting in Cash Flow Statement**: Current investments are reported under the investing activities section of the cash flow statement because they involve changes in the composition of short-term assets that affect cash and cash equivalents. The cash flow statement categorizes these activities to provide transparency into how the company is managing its short-term liquidity and investment strategies.
5. **Link to Financial Statements**: The cash flow statement complements the balance sheet and income statement by showing how changes in balance sheet accounts and income affect cash and cash equivalents. For current investments, it provides insight into the company's liquidity management and short-term investment decisions.
In summary, current investments are treated as investing activities in the cash flow statement because they involve transactions related to short-term assets that affect cash flows. Whether cash inflows from the sale of these investments or cash outflows from their purchase, these activities are crucial for understanding a company's short-term investment strategy and liquidity management.
1. **Definition of Current Investments**: Current investments typically refer to short-term investments that are readily convertible into cash within one year. They are often held for trading or to meet short-term liquidity needs.
2. **Treatment in Cash Flow Statement**:
- **Cash Inflows**: Any cash received from the sale or maturity of current investments is classified as a cash inflow from investing activities. This includes the proceeds received from selling these investments.
- **Cash Outflows**: Cash paid to acquire current investments is considered a cash outflow from investing activities. This includes the initial purchase of short-term investments.
3. **Examples of Current Investments**:
- Treasury bills
- Marketable securities
- Bank deposits with maturity periods of less than one year
- Money market funds
4. **Reporting in Cash Flow Statement**: Current investments are reported under the investing activities section of the cash flow statement because they involve changes in the composition of short-term assets that affect cash and cash equivalents. The cash flow statement categorizes these activities to provide transparency into how the company is managing its short-term liquidity and investment strategies.
5. **Link to Financial Statements**: The cash flow statement complements the balance sheet and income statement by showing how changes in balance sheet accounts and income affect cash and cash equivalents. For current investments, it provides insight into the company's liquidity management and short-term investment decisions.
In summary, current investments are treated as investing activities in the cash flow statement because they involve transactions related to short-term assets that affect cash flows. Whether cash inflows from the sale of these investments or cash outflows from their purchase, these activities are crucial for understanding a company's short-term investment strategy and liquidity management.
You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now
Click here to login now
Similar Resolved Queries
Unanswered Queries
- Refund Annexure-B
- House Property Reporting in ITR
- TDS Claim year
- Liable to deduct tds and 44ADA
- Rent lease agreement
- Refund of 20%pre-deposit paid for stay application
- TDS Challan Code
- Nomination of Bank for refund in itr 2
- Section 56(2) of the Income tax Act 1961 , Gift to relative .
- Is Interest applicable for payment made through credit ledger vide DRC03 for FY 2020-21 & 2021-22
- Internship/Academic shown in Salary Pay Slip of a Doctor
- E Commerce GSTR1 & 3B how to file
- GST Cancellation without jurisdiction
- Legal Opinion on Registrar's Refusal to Investigate a Society for Non-Renewal and Non-Compliance
- GST Refund_RFD-01
- Form10BD was uploaded successfully without any Error but after 24 hours, Form10BE are not available
- Annexure B utility for GST Refund
- Tax amount diff in Gstr1 and 3B in tax compare reports
- Tds on GST in connection with sale to public company
- Restoration of certificate of practice
Trending Online Classes
-
DT & Audit (Exam Oriented Fastrack Batch) - For May 26 Exams and onwards Full English
CA Bhanwar Borana & CA Shubham Keswani
CAclubindia
