Index Meaning and Types Cash Flow Operating Activities Investing - - PowerPoint PPT Presentation

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 4

Index

• Meaning and Types Cash Flow
• Operating Activities
• Investing Activities
• Financing Activities
• Interest
• Dividend

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 3

Index

• Introduction Cash Flow Statement
• Meaning
• Applicability
• Cash and Cash equivalents

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 6

Index

• Acquisitions

and disposals

• f

subsidiaries and other business units

• Non-cash transactions
• Disclosures
• f

cash and cash equivalents

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 7

Introduction

Traditional financial statement fails to inform the way enterprise has generated cash and were utilised in the accounting period. The need for inclusion of cash summary was therefore recognised.

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 8

Meaning

The summary of cash transactions (receipts and payments) during an accounting period is called Cash Flow Statement. The transactions

are catagorised as Operating, Investing and Financing.

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 9

Accounting Standard

The ‘Accounting Standards’ are issued to establish principals and policies which have to be complied by the business entities in preparing the financial statement.

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 10

AS-3

AS-3/IAS-7/IndAS-7 deals with preparation of Cash flow Statement.

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 12

Cash and Cash Equivalents

Cash Equivalents:-

Short term, highly liquid investments, that are readily convertible into known amounts of cash and are subject to insignificant risk/change to value

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 14

Types of Cash Flow

The cash flows generated through various activities are classified as

• Operating cash flow
• Investing cash flow
• Financing cash flow

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 15

Cash Flow Activities

Operating (From Day to Day Activities) Investing e.g. Purchase of Land Financing e.g. Loan Taken

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 16

Operating Activities

• These

are principal revenue producing activities

• f

the enterprise.

• Examples:
• Cash receipts from sale of goods
• r rendering services

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 18

Reporting of Cashflow from

• perating activities
• It can be derived either from direct

method or indirect method

• Direct method:
• In this method, gross receipts

and gross payments

• f

cash are disclosed

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 19

Direct Method Cash receipts from customers XX Cash paid to suppliers XX Cash paid to employees XX Cash paid for other operating expenses XX Cash generated from operation XX Income tax paid XX Net cash from operating activities XX

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 20

• Indirect method:
• In this method, profit and loss account

is adjusted for the effects of transaction

• f non-cash and non-operating nature.
• Cash

flow statement

• f

listed companies shall be presented

• nly

under the indirect method as prescribed in AS 3

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 21

Retained Earning XX Add: Dividend paid XX Income Tax XX Net Profit Before Tax XX Add: Depreciation XX Loss on sale of Asset/Investment XX Interest Paid XX Provision for Bad debts XX Less: Interest/ Dividend Received XX Profit on sale of Asset/ Investment XX

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 22

Funds from operations XX Add: Decrease in Current Asset XX Add: Increase in Current Liabilities XX Less: Increase in Current Asset XX Less: Decrease in Current Liabilities XX Cash generated from operation XX Income Tax Paid XX Net Cash flow from operating activities XX

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 23

Investing Activities

• The

activities

• f

acquisition and disposal of long term assets and other investments not included in cash equivalent are investing activities.

• It includes acquiring and disposal of

debt and equity instruments, property and fixed assets etc.

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 24

• Examples:
• Cash

payments for purchase

• f

fixed assets

• Cash receipts from disposal of FAs
• Cash

payments to purchase shares,

• r

debt instruments

• f
• ther companies
• Cash

receipt from disposal

• f

above investments

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 26

• Financing Activities
• Example:
• Issue of equity shares
• Buy back of equity shares
• Issue/ Redemption of preference shares
• Issue / redemption of debentures
• Long term loan / payment thereof
• Dividend / interest paid

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 27

Interest

Interest Received

• Received
• n

investment – it is investment inflow

• Received

from short term investment classified, as cash equivalents should be considered as cash inflows from

• perating

activities

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 28

• Received on trade advances and
• perating receivables should be in
• perating inflows
• For

financial enterprises – in

• perating inflow

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 29

Interest Paid

• On loans/debts is financing activities
• On working capital loan or loan taken to

finance operating activities are included in operating inflows

• For financial enterprises – in operating
• utflow

Cash Flow - Dr. varadraj Bapat, IIT Mumbai 30

Dividend

• Dividend Received
• For

non-financial enterprises- investing inflow

• For financial enterprises – operating

inflow

• Dividend Paid
• Always classified as financing inflow