PPT - Cash Flow Statements | Accountancy Class 12 - Commerce PDF Download

 Page 1


CHAPTER–V
CASH FLOW STATEMENT
Page 2


CHAPTER–V
CASH FLOW STATEMENT
Introduction
•
Cash plays a very important role in the economic life of a 
business.
•
 A firm needs cash to make payment to its suppliers, to incur 
day-to-day expenses and to pay salaries, wages, interest and 
dividends etc.
•
 In fact, what blood is to a human body, cash is to a business 
enterprise.
•
 Thus, it is very essential for a business to maintain an 
adequate balance of cash.
•
For example, a concern operates profitably but it does not 
have sufficient cash balance to pay dividends, what message 
does it convey to the shareholders and public in general. 
•
Thus, management of cash is very essential.
Page 3


CHAPTER–V
CASH FLOW STATEMENT
Introduction
•
Cash plays a very important role in the economic life of a 
business.
•
 A firm needs cash to make payment to its suppliers, to incur 
day-to-day expenses and to pay salaries, wages, interest and 
dividends etc.
•
 In fact, what blood is to a human body, cash is to a business 
enterprise.
•
 Thus, it is very essential for a business to maintain an 
adequate balance of cash.
•
For example, a concern operates profitably but it does not 
have sufficient cash balance to pay dividends, what message 
does it convey to the shareholders and public in general. 
•
Thus, management of cash is very essential.
Cash flow statement
•
Cash flow statement provides information about the cash 
receipts (Inflows) and payments (outflows) of a firm for a given 
period.
•
 It is a statement depicting change in cash position from one 
period to another.
•
For example, if the cash balance of business is shown by its 
Balance sheet on 31st December, 2012 at $20,000 while the cash 
balance as per its balance sheet on 31st December, 2013 is $ 
30,000. There has been an inflow of cash of $10,000 in the year 
2013 as compared to the year 2012. 
•
It explains the reasons for such inflows or outflows of cash, as the 
case may be.
•
 It also helps management in making plans for the immediate 
future.
Page 4


CHAPTER–V
CASH FLOW STATEMENT
Introduction
•
Cash plays a very important role in the economic life of a 
business.
•
 A firm needs cash to make payment to its suppliers, to incur 
day-to-day expenses and to pay salaries, wages, interest and 
dividends etc.
•
 In fact, what blood is to a human body, cash is to a business 
enterprise.
•
 Thus, it is very essential for a business to maintain an 
adequate balance of cash.
•
For example, a concern operates profitably but it does not 
have sufficient cash balance to pay dividends, what message 
does it convey to the shareholders and public in general. 
•
Thus, management of cash is very essential.
Cash flow statement
•
Cash flow statement provides information about the cash 
receipts (Inflows) and payments (outflows) of a firm for a given 
period.
•
 It is a statement depicting change in cash position from one 
period to another.
•
For example, if the cash balance of business is shown by its 
Balance sheet on 31st December, 2012 at $20,000 while the cash 
balance as per its balance sheet on 31st December, 2013 is $ 
30,000. There has been an inflow of cash of $10,000 in the year 
2013 as compared to the year 2012. 
•
It explains the reasons for such inflows or outflows of cash, as the 
case may be.
•
 It also helps management in making plans for the immediate 
future.
Purpose of the Statement
?
To provide relevant information about the cash receipts 
and cash payments of an enterprise during a period. 
?
The statement provide answers to the following questions:
1. Where did the cash come from?
2. What was the cash used for?
3. What was the change in the cash balance?
Page 5


CHAPTER–V
CASH FLOW STATEMENT
Introduction
•
Cash plays a very important role in the economic life of a 
business.
•
 A firm needs cash to make payment to its suppliers, to incur 
day-to-day expenses and to pay salaries, wages, interest and 
dividends etc.
•
 In fact, what blood is to a human body, cash is to a business 
enterprise.
•
 Thus, it is very essential for a business to maintain an 
adequate balance of cash.
•
For example, a concern operates profitably but it does not 
have sufficient cash balance to pay dividends, what message 
does it convey to the shareholders and public in general. 
•
Thus, management of cash is very essential.
Cash flow statement
•
Cash flow statement provides information about the cash 
receipts (Inflows) and payments (outflows) of a firm for a given 
period.
•
 It is a statement depicting change in cash position from one 
period to another.
•
For example, if the cash balance of business is shown by its 
Balance sheet on 31st December, 2012 at $20,000 while the cash 
balance as per its balance sheet on 31st December, 2013 is $ 
30,000. There has been an inflow of cash of $10,000 in the year 
2013 as compared to the year 2012. 
•
It explains the reasons for such inflows or outflows of cash, as the 
case may be.
•
 It also helps management in making plans for the immediate 
future.
Purpose of the Statement
?
To provide relevant information about the cash receipts 
and cash payments of an enterprise during a period. 
?
The statement provide answers to the following questions:
1. Where did the cash come from?
2. What was the cash used for?
3. What was the change in the cash balance?
Why cash flow Analysis ???
•
Its an important analytical tool for creditors, investors and other 
users of financial statement data.
?
Firm’s ability to generate cash flows in the future
?
Firm’s capacity to meet cash obligations
?
Firm’s future external financing needs
?
Firm’s success in productively managing investing activities
?
Firm’s effectiveness in implementing financing and investing 
strategies