Preparation Of Cash Flow Statement.

Cash flow statement can be prepared under two methods:-

(i) Direct method and 

(ii) Indirect method 

We will discuss about indirect method here. In fact two methods differ only in calculating cash flows from Operating Activities.

 

Cash flows into a business under three activities:-

1. Operating Activities

2. Investing Activities and

3. Financing Activities

1. Operating Activities:- Cash comes in and goes out from operations is shown under this head. Changes in current assets and changes in current liabilities is shown here. When current assets increase it is cash outflow and When assets decrease it is cash inflow. When current liabilities increase it is cash inflow and When current liabilities decrease it is cash outflow. Any non cash expenditure like depreciation, amortization e.t.c  is added to net income.

2. Investing Activities:-  Cash comes in and goes out from investing activities is shown under this head. Examples include purchase and sale of long term assets. 

3. Financing Activities:- Cash comes in and goes out from financing activities is shown under this head.

Examples include dividend paid, Common stock issue and retire, Bond issue and retire e.t.c

A sample Cash Flow Statement