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Cash being the most vulnerable item in a business, the reporting should be done in an appropriate and acceptable format according to Format of Cash flow Statement Assignment Help. For any investor, cash flow statement may sound similar to the profit and loss account. However while the profit and loss account tell us the revenues and expenses the company made during the period, the cash flow statement gives an idea of how much cash came into the company and how much went out of the company. The major difference between the two is that unlike the profit and loss account which consists of non-cash revenues or expenses, statement of cash flows does not include the non cash revenue/expenses.
Cash flow statement is a financial statement that reflects the inflows and outflows of cash and cash equivalents* resulting from operating, investing and financing activities during a specific time period. Cash flow statements and projection express a business’s results or plans in terms of cash in and out of the business, without adjusting for accrued revenue and expenses. The cash flow statement is not sure whether the business will be profitable, but it does shows the cash position of the business at any given point in time by measuring revenue against outlays.
Presentation of cash flow statement
Every company can generate cash to different avenues and the statement of cash flows would reflect this in three sections
1. Operating Activities
2. Investing Activities
3. Financing Activities
Cash flows from operating activities are primarily derived from the principal revenue producing activities of the enterprise.
Cash flow from financing activities predicts claims on future cash flows by providers of funds (both capitals and borrowings) to the enterprise.
Methods for Preparation of Cash Flow Statement
i) Direct Method
ii) Indirect Method
Cash comprises cash on hand and demand deposits with banks. The direct method of preparing a cash flow statement results more easily understood report. The indirect method is almost universally used, because statue requires a supplementary report similar to the indirect method if a company chooses to use the direct method.
Direct Method: The direct method for creating cash flow statement reports major classes of gross cash receipts and payments. It provides formation which may be useful in estimating future cash flows and which is not available under the indirect method and is, therefore, considered more appropriate than the indirect method. In direct method, information about major classes of gross cash payments may be obtained either.
(a) From the accounting records of the enterprise; or
(b) By adjusting sales, cost of sales and other items in the statement of profit or loss for:
• Changes during the period in inventories and operating receivables and payables;
• Other non cash items; and
• Other items for which the cash effects are investing and financing cash flows.
Indirect method: The indirect method considers the net profit before tax and makes adjustment for the followings items
(a) Changes during the period in inventories and operating receivables and payables.
(b) Non-cash items such as depreciation, provision, deferred taxes and unrealized foreign exchange gains and losses; and
(c) All other items for which the cash effects are investing and financing cash flows.
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