Preparation of Cash Flow Statement

Meaning of Cash Flow Statement:

According to Accounting Standard 3, Cash flow statement is defined as, ‘Cash flow statements exhibit the flow of incoming and outgoing cash. This statement assesses the ability of the enterprise to generate cash and to utilize the cash. This statement is one of the tools for assessing the liquidity and solvency of the enterprise.’

As mentioned initially, the cash flow statement furnishes data about the shift in the position of Cash Equivalents and Cash of a firm, over an accounting period. The pursuits according to this change are incorporated into investing, financing and operating. However,

  • The average of the net ‘cash flows (or use) is operated out and is given as ‘Net Increase or Decrease in Cash Equivalents and cash’ to which the amount of ‘cash and cash equivalent at the commencement’ is summed and therefore the quantity of ‘cash and cash equivalents at the end’ is reported.
  • This total will be the same as the entire amount of cash at bank, cash equivalents (if any) and cash in hand presented in the balance sheet
  • Then, if the cash flows from operating activities are formed by direct method while outlining the cash flow statement, it will be known as ‘direct method Cash Flow Statement’

The above mentioned is the concept, that is elucidated in detail about the Preparation of Cash Flow Statement for the class 12 Commerce students. To know more, stay tuned to BYJU’S.