Please explain so that Layman can Understand

The amounts which will go out of the company will be deducted........ which will come will be added to arive the net figure

For Cash Flow Statement

Since sales include both cash sales and credit sales. We have to know  how much cash comes in or goes out during the year by preparing cash flow statement

I Will explain through example 1

assume you started a new business from 1-4-2009 with the cash of rs.200000/-

you made cash purchase  (Rs.50000) and sold goods on credit. Assume you sold goods on credit of worth rs.100000/-

as on 31/03/2010

Pft will be (100000-50000)   50000

inceasig in debtors               (100000) cash outflow

outflow from operations         (50000)

op cash                                       200000

closing cash                                150000

Opeing cash 200000- (50000) outflow = Rs.150000/- closing cash
Verify :   cash 200000- purchases 50000 = Rs.150000 closing cash

op drs is nil  clng drs 100000 increasing in sundry debtors of Rs.100000/- it means to the extent of Rs.1 lacs our fund has been blocked outside (with drs)

Let us extent the example

Assume you collected Rs.45000/- during the year 09-10. So as on 31/03/2010 drs will Rs.55000/-

then increasing drs will be Rs.55000/- because you collected to the extent of Rs.45000/- and amt blocked to the extent of Rs.55000/-

Profit (100000-50000) = 50000

Less: Inc in Drs                (55000)

                                      ----------------

cash outflow                       (5000)

Op cash                         2000000

closing cash                      195000

 Verification  Op cash 200000-cashPurchases(50000)+cash collected(45000)=195000

Example 2

For existing business

Op drs 100000  closing drs 45000 you collected rs.55000/- sale during year is nil

Decreasing in sundry drs Rs.55000/-. it represents you collected to the extent of rs.55000/- cash comes in