Summary of Cash Flow Statement

· Cash flow statement is a statement that shows an enterprise’s inflows and outflows of cash during a accounting period.

· A cash flow statement provides the basis for evaluating an enterprise’s cash flows. The statement shows the impact of operating, investing and financing activities on cash.

· Some of the advantages of cash flow are:

1. It provides information about an enterprise’s liquidity, flexibility and ability to generate future cash flows, which is critical important to survival and to successful growth.

2. It can provide information about an entity’s ability to meet its obligation they become due.

3. It enhances to comparability of the reporting to operating performance by different enterprise because it eliminates the effects of using different accounting treatment of the same transactions and events.

4. It helps to assess the reliability of the net profit.

· Some of the limitations of Cash Flow Statement are:

1. The meaning of the word ‘cash’ is not clearly and precisely expressed. Also, the cash balance of a firm is too easily influenced by postponing cash receipts and cash payments.

2. Since cash is a of the working capital, the statement does not show changes in working capital at a glance.

3. Cash flow statement does not reflect cash flows where accrued income and expenses are involved.

· AS-3 lays down a format for the cash flow statement which identifies separately the main activities resulting in cash inflow or outflows. The standard requires that three separate categories of cash flow should normally be shown in cash flow statement.

There are: 1. Operating Activities; 2.Investing Activities; 3.Financing Activities.

· Cash flows arising from income should be separately disclosed and should be classified as cash flow from Operating Activities unless they can be specially identified with financing and investing activities.

· Cash flow associated with extraordinary items should be classified as arising from operating, investing or financing activities as appropriate and separately disclosed.

Cash flow from interests and dividends received and paid should each be disclosed separately.