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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
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FAQs on PPT - Cash Flow Statements - Accountancy Class 12 - Commerce

1. What is a cash flow statement?
Ans. A cash flow statement is a financial statement that provides information about the cash inflows and outflows of a company during a specific period. It helps in analyzing the sources and uses of cash and provides insights into the company's liquidity and cash management.
2. Why is a cash flow statement important for businesses?
Ans. A cash flow statement is important for businesses as it helps in assessing the company's ability to generate cash and its overall cash position. It provides valuable information for making financial decisions, such as investment and financing options, and helps in evaluating the company's financial health and sustainability.
3. What are the three main sections of a cash flow statement?
Ans. The three main sections of a cash flow statement are operating activities, investing activities, and financing activities. The operating activities section includes cash flows from the company's core operations, such as sales and expenses. The investing activities section includes cash flows from buying or selling assets, while the financing activities section includes cash flows from borrowing or repaying loans, issuing or buying back shares, and paying dividends.
4. How is a cash flow statement different from an income statement?
Ans. A cash flow statement and an income statement are two different financial statements that provide different perspectives on a company's financial performance. While an income statement shows the company's revenue, expenses, and net income or loss for a specific period, a cash flow statement focuses on cash inflows and outflows. The cash flow statement provides information on the actual cash generated or used by the company, regardless of the timing of revenue recognition or expenses.
5. How can a cash flow statement be used to evaluate a company's financial health?
Ans. A cash flow statement can be used to evaluate a company's financial health by analyzing its cash flow from operating activities. Positive cash flow from operating activities indicates that the company is generating sufficient cash to cover its expenses and invest in growth opportunities. Additionally, a company with a consistent positive cash flow from operating activities is more likely to have a stable financial position and ability to meet its short-term obligations. Conversely, negative or declining cash flow from operating activities may indicate potential financial difficulties and a need for further analysis.
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