# What is Cash Flow statement in Accounting ? Introduction and Basic Concept

## What is cash flow statement

Cash Flow Statement It contains three words Cash, flow, and statement.

It is prepared for Accounting standard AS -3(revised)

Cash means cash and cash equivalent. It means bank balance which is equal to cash. Marketable security (it can sell any time)

Three types of cash areÂ

• Cash
• Cash at Bank
• Marketable securityÂ

Flow means which is changing in the cash flow statement. So we have to find change in the cash.

Machinery value Rs. 100,000 last year now value Rs 150,000.

This means the flow of cash is 50,000.

The statement means is the documents.

The cash flow statement is the change in cash in two years.

Flow can increase the cash or decrease the cash we need to note both of them .

There are two method of preparing cash flow statement.

• Direct Method
• Indirect Method

Cash flow statements are prepared in three parts.

1. Cash flow from Operating Activities
2. Cash flow from investing activities
3. Cash flow from Financial Activities

## Format of cash flow Statement (Direct method)

[table id=1 /]

The Structure of the Cash Flow Statement
The main components of the cash flow statement are:

• Cash from operating activities
All activities that are related to the operation of a business such as sales, cash paid to creditors, cash received from debtors, etc.
Â
Â
• Cash from investing activities
Example :Â
Fixed Assets and Investment
• Cash from financing activities.

Example: the issue of share or loan.

Calculation of Net profit before Tax:

1. Current year profit – previous year’s profit.

Calculation of Net profit before Tax:

+transfer to reserverÂ

+Proposed dividend

+Interim dividend

+Provision for tax

MinusÂ

+Refund of tax

1. Prepare Assets Accounts
2. Â

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What is the use of a Cash flow statement?

The Cashflow Statement allows investors to understand how a company’s operations are running, where its money is coming from, and how money is being spent. The Cash Flow Statement is important since it helps investors determine whether a company is on a solid financial footing.

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## Cash flow statement indirect method

[table id=2 /]
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