how to prepare cash flow statement

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Post on 19-May-2015



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Material for PGPSE participants of AFTERSCHOOOL CENTRE FOR SOCIAL ENTREPRENEURSHIP. PGPSE is an entrepreneurship oriented programme, open for all, free for all.


  • 1. HOW TO PREPARE CASH FLOW STATEMENTby :DR. T.K. JAIN AFTERSCHO OLcentre for social entrepreneurshipsivakamu veterinary hospital road bikaner 334001 rajasthan, india mobile : 91+9414430763

2. What is cash flow ?Flow of cash means, where is the cash going out or where from cash is coming in 3. How to prepare cash flow ?Identify resources, where cash has been used... for example : building in the beginning of the year was 2000, now it is of 5000, it means you have spend Rs. 3000 on new building, thus cash has flown outside for purchase of building 4. How to prepare cash flow statement?Identify each asset, find its closing balance for this year and for the last year and find the difference, this will tell you about flow of cash.If the assets have increased, probably cash has flown outside (you have paid cash), if assets have decreased, probably you have sold them (cash has flown in). 5. Liability source of cash Assets consume cash, but liabilities give cash.If equity has increased, it means, cash has increased. Loans have increased, it means, cash has increased. Whenever there is an increase in liability, there is an increase in cash. 6. Find out cash profit... All your profit is not cash profit. Some of the profit is from non-cash transactions- which has to be excluded from profit.Thus you have two options, - 1. prepared adjusted profit and loss account or 2. prepare a fresh p&l account taking into account only cash transactions. 7. How to prepare cash flow statement?Classify cash flows in three types1. cash flow from operating activities 2. cash flow from investing activities 3. cash flow from financing activities. 8. cash flow from operating activities These include day to day business activities. Some of them will give cash, some of these will require cash.Activities can be classified into two types :1. activities that give cash inflow2.activities that generate cash outflow 9. Operating activities with cash inflowCash sales (dont take credit sales )interest received fees received other payment received. 10. Operating activities with cash outflowCash purchase (dont include credit purchase, for which you have not paid yet) wages paid salaries paid rent paid postage paid administrative expenses paid sales exp. Paid etc. 11. Cash from operating activities... Direct method : here you list down all the activities involving cash inflow and cash outflow and find the net difference, this is called cash profit.Indirect method : here you take profit from P& L account and then adjust it for non-cash items. 12. Cash from investing activities.Those activities which require investments, they are of two types :1. investment activities with cash inflow2.investment activities with cash outflow 13. investment activities with cash inflowExamples :sale of buildingsale of machinary sale of furniture sale of investments dividend / interest received on investments 14. investment activities with cash outflowExamples :purchase of building purchase of machinary purchase of furniture purchase of investments purchase of plant purchase of other assets.. 15. Cash flow from financing activities Financing refers to equity, loans, debts, etc, which give money for running business. Investing activities were related to assets of the company, financing is related to long term liabilities of the company.They are of two types:1. financing activities with cash inflow 2.financing activities with cash inflow 16. financing activities with cash inflowCash inflow from equity cash inflow from loans / debentures / bonds cash inflow from borrowing from relatives cash inflow from preference shares 17. financing activities with cash out-flowHere you are making payments for the sources of long term cash :1. redemption of debentures 2. redemption of preference shares 3. payment of loans 4. payment of other long term liabilities.5. interest payment on loans / dividend on equity 18. CASH FLOW STATEMENT It shows the total payments received or paid inthree categories :operating financinginvestingcash flow statement helps you in identifying the flow of cash and it helps you in cash planning 19. How to classify cash flow ? Look into the nature of cash transaction and identify the cash flow and its implication.If dividend has been received : it is cash inflow from investing activities if dividend has been paid : it is cash outflow from financing activity 20. Be careful about non-cash transactions... Exclude following from your reports :depreciation, provisions, bad debts, drawings of goods, and all those transactions, which dont have cash flow ... 21. Example :Balances of a company show :the following record : 22. Analysis :Cash flow from financing : (equity : 20, debt : 20) cash flow from investing : (building : -20, plant : -20 ) cash flow form operating: (debtors :-20,creditors : 20, cash profit : 40)thus net cash flow is only Rs. 40. 23. Simple rules to remember ???? When assets increase, cash outflow takes place when current assets increase, cash outflow take place when liabilities increase, cash inflow take place when current liabilities increase, cash inflow take place exclude non-cash transactions (like exchange of building against equity) 24. THANKS.... GIVE YOUR SUGGESTIONS AND JOIN AFTERSCHOOOL NETWORK / START AFTERSCHOOOL NETWORK IN YOUR CITY[email_address] PGPSE WORLD'S MOST COMPREHENSIVE PROGRAMME IN SOCIAL ENTREPRENEURSHIP


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