Table of Contents
Steps to prepare cash flows statement
The preparation of a cash flow statement typically involves the following steps:
- Gathering data: The first step is to gather all the financial information that is necessary to prepare the statement. This includes data from the company’s balance sheet, income statement, and other financial statements.
- Calculating cash inflows: The next step is to calculate the cash inflows for the period being reported. This includes cash received from customers, interest income, and any other sources of cash.
- Calculating cash outflows: The next step is to calculate the cash outflows for the period being reported. This includes cash spent on operating expenses, capital expenditures, debt repayment, and any other cash outflows.
- Classifying cash flows: The next step is to classify the cash flows into the three categories mentioned in the statement of cash flows: operating activities, investing activities, and financing activities.
- Preparing the statement: Once the data has been gathered and classified, the cash flow statement can be prepared. This typically involves presenting the cash inflows and outflows for each category in a clear and concise format.
Cash flow classification
The format of a cash flow statement typically includes the following sections:
- Operating activities: This section includes cash inflows and outflows related to the company’s normal business operations, such as sales and the payment of expenses. Operating activities are typically reported using the indirect method, which starts with net income and then adjusts for non-cash items, such as depreciation and amortization, and changes in working capital accounts.
- Investing activities: This section includes cash inflows and outflows related to investments in long-term assets, such as property, plant, and equipment. It also includes cash inflows from the sale of investments and cash outflows for the purchase of investments.
- Financing activities: This section includes cash inflows and outflows related to a company’s financing activities, such as issuing or repaying debt, issuing stock, or paying dividends.
Direct method vs Indirect method of presentation
There are two methods of producing a statement of cash flows, the direct method and the indirect method.
The operating section of the statement of cash flows can be shown through either the direct method or the indirect method. For either method, the investing and financing sections are identical; the only difference is in the operating section. The direct method is a method that shows the major classes of gross cash receipts and gross cash payments. The indirect method, on the other hand, starts with the net income and adjusts the profit/loss by the effects of the transactions. In the end, cash flows from the operating section will give the same result whether under the direct or indirect approach.
A. Cash Flow Statement in Report Form
| Particulars | Amount | |
| Opening Cash Balance | ||
| Add Cash Inflows | ||
| Cash Inflow from Operations | ||
| Sale of Assets | ||
| Issue of Equity Share | ||
| Issue of Preference Share | ||
| Premium Charged on Shares | ||
| Issue of Debentures | ||
| Borrow of Secured and Unsecured Loan | ||
| Issuing of Fixed Deposit, Bills, etc. | ||
| Dividend Received | ||
| Income Tax Refund | ||
| Total | ||
| Less Applications of Outflow | ||
| Redemption of Preference Shares | ||
| Redemption of Debentures | ||
| Repayment of Secured or Unsecured Loans | ||
| Repayment of Fixed Deposits, Bills, etc | ||
| Purchase of Assets | ||
| Cash Lost in Operations | ||
| Payment of Dividend | ||
| Payment of Taxes | ||
| Cash Balance | ||
B.
| Particulars | Details | Amount |
| Opening Balance Cash and Cash Equivalents | ||
| Add | ||
| Cash Flow from Operating Activities | ||
| Net Profit before Tax | ||
| Adjustment for: | ||
| Depreciation | ||
| Loss on sale of Fixed Assets | ||
| Loss on revaluation | ||
| Operating Profit before Working Capital Changes | ||
| Adjustment for: | ||
| Trade and other Receivables | ||
| Inventories or Stock | ||
| Trade Payables or Creditors | ||
| Cash generated from Operations | ||
| Interest Paid | ||
| Taxes paid | ||
| Net Cash Flow From Operating Activities | ||
| Cash Flows from Investing Activities | ||
| Purchase of Fixed Assets | ||
| Purchase of Investments | ||
| Sale of Fixed Assets | ||
| Interest Received | ||
| Dividend Received | ||
| Net Cash Flow from Investing Activities | ||
| Cash Flows from Financing Activities: | ||
| Issue of Equity Shares | ||
| Issue of Preference Shares | ||
| Less Payment of Preference Shares | ||
| Net Cash Flow from Financing Activities | ||
| Net Increase (decrease) in Cash And Cash Equivalents | ||
C. Cash Flow Statement in T Form
Particulars |
Amount |
Particulars |
Amount |
Opening Cash Balance |
Cash Outflow |
||
Add Cash Inflow |
Redemption of Preference Shares |
||
Cash Inflow from Operations |
Redemption of Debentures |
||
Sale of Assets |
Repayment of Secured or Unsecured Loans |
||
Issue of Equity Shares |
Repayment of Fixed Deposits, Bills, etc |
||
Issue of Preference Shares |
Purchase of Assets |
||
Issue of Debentures |
Cash Lost in Operations |
||
Borrow of Secured and Unsecured Loans |
Payment of Dividend |
||
Issuing of Fixed Deposits, bills etc. |
Payment of Taxes |
||
Dividend Received |
|||
Income Tax Refund |
Cash Balance |
||
Total |
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