Cash flow statement - AS-3

Cash flow statement reports the cash receipts, cash payments, and net changes in cash resulting from operating, investing, and financing activities. This statement helps management to show the sources of cash and its uses during a particular period of time i.e. inflow and outflow of cash. This will help management to know the past experience and can do planning for future.

Terms to remember:

Cash: means cash on hand and demand deposits with banks. Demand deposit means those deposits which are repayable by bank on demand by depositors

Cash Equivalents: are short terms, highly liquid investments that are readily convertible into known amount of cash and which are subject to an insignificant risk of changes in value

Cash Flows: are inflows and outflows of cash and cash equivalent i.e. movement of cash in or out of the organization.

Classification of Cash Flows:

The cash flow of a organization is classified into 3 categories:

1. Cash flow from Operating Activities:

Operating Activities are those activities which include the purchase and sale of goods and services which determine revenue for a business.

Examples: Cash receipt from the sale of goods and rendering of services.

Cash receipts from royalties, fees, commissions and other revenues

2. Cash flow from Investment Activities:

Investment Activities are the transaction and events that involve the purchase and sale of long term productive assets (i.e. land, building, plant, and machinery etc). Not held for resale and other investment.

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