Ques : Describe Components of cash flow statement

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 A cash flow statement is divided into 3 sections. Each head signifies the source from

which a company can make money. A positive cash flow indicates cash inflows,
whereas a negative cash flow indicates cash outflows.Cash Flow Statement is based
on balance sheet, profit & loss account, profit & loss appropriation account and other
given information. The council of Institute of Chartered Accountants of India (ICAI)
issued on 3rd March, 1997 revised Accounting Standard 3 (Revised AS -3)
superseding the AS -3 issued in June 1981This Accounting Standard is recommended
for use by firms listed on a recognized stock market, as well as other commercial,
industrial, and business entities in the public and private sectors with a turnover of
more than Rs 50 crore in a financial year, in the early years. All of these businesses
must prepare a cash flow statement in accordance with AS -3 (Revised) and display it
as an important component of their financial statements for each period for which
they are prepared.

The Cash flow statement should report cash flows during the period under analysis
classified into the three broad components i.e., Operating Activities, Investing
Activities and Financing Activities.
A brief discussion of each of these components
is given below:

(1) Cash Flows from Operating Activities: A business's major revenue-generating
activities are its operating activities. The cash flows from this are often the outcome
of transactions and other events that affect net profit or loss. The following are some
examples of cash flows from operating activities:

(i) Cash inflows associated with sales and rendering of services;
(ii) Cash inflows from fees, commission, royalties and other revenues;
(iii) Cash outflows from operating expenses, such as payments to suppliers of
goods or services, wages, interest, and taxes, and so on.
(iv) Change in current assets, e.g., Receivables, inventory, and changes in
current liabilities, including accounts payable, salaries payable, interest due, and taxes
payable, are all indicative of operating activity.

(2) Cash Flows from Investing Activities: The acquisition and sale of fixed assets
such as land and buildings, plant and machinery, and the purchasing and selling of
investments and other investments not included in cash equivalents are the cash flows
from this activity. The acquisition of these assets results in a financial outflow,
whereas their disposal results in a cash inflow. They show how much money has been
spent on resources that are expected to create future income and cash flows.

(3) Cash Flows from Financing Activities: Financing activities include changes in
the quantity and composition of owner's equity and preference capital, debentures,
long-term loans, and other similar items. Cash inflow is implied by the issuance of
equity, preference, and debenture capital, as well as the raising of long-term loans. On
the other side, cash outflow is related with capital retirement, dividend payments to
shareholders, debenture redemption, and long-term debt amortization.

The net gain or reduction in cash flow for the company is computed by adding the
findings from each section.

Securities and Exchange Board of India (SEBI) has prescribed format for cash flow
statement for listed companies. You can follow the following format as per AS -3 for
the preparing of Cash Flow Statement for a firm other than financial enterprise.

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