Question

8. CASH FLOW STATEMENT REQUIRES AS MINIMUM INFORMATION THE BEGINNING AND ENDING BALANCE SHEETS AND AN INCOME STATEMENT FOR THE PERTIOD WHICH REFEREED TO AS NET CASH FLOW FORMAT. WHAT ARE THE STEPS IN PREPARING CASHFLOW STATEMENT USING THI SAID FORMAT. - . A . A. ANG ANAINT B AE VOLIR 12 MONTH

Answer 1

Cash flow statements of any organisation are the statement of the incoming cash and outgoing cash. It can be said that the only cash related items are shown in cash flow statements.
It provides additional information about the organisation and explain the reason for the changes in cash and cash equivalents, with the help of financial statement at two point of time (i.e opening /beginning balance sheet and closing/ending balance).

The preparation of cash flow statement is different from preparation of profit and loss account and balance sheet. Cash flow statements are prepared with the help of financial statements.

The following are the steps involved in the preparation of net cash flow statement :

1. The first step involves the comparison of cash and cash equivalents from beginning and ending balance sheet which finally computer the net increase or decrease in cash and cash equivalents.
2. Step 2 involves the computation of net cash flow from operating activities by analysing profit and loss account, balance sheet and additional information. Net cash flow from operating activities can be obtained by two methods : direct method or indirect method.
3. Step 3 Net cash flow from investing activities is to be determined.
4. Step 4 Net cash flow from financing activities it is to be determined.
5. Net cash flow statement is almost ready in Step5, where the aggregate of all the three activities i.e operating, investing, and financing is done and is compared with the net increase or decrease in cash and cash equivalents which was determined in Step 1.
6. Additional information about the non cash transactions are to be provided in step 6. These non cash transactions does not involve any cash and cash equivalents. Example : purchase of fixed assets in exchange of share capital.