Preparation of Cash Flow Statement

Meaning of Cash Flow Statement:

A cash flow statement is a financial report that manifests cumulative information regarding the entire cash inflows a company profits from its ongoing progress and external financing sources, as well as all cash outflows that fund for trading pursuits and finances during a delivered time. To put it in other words, a cash flow statement is a financial statement that estimates the cash produced or used by a firm in a presented time.

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,

  • While outlining a cash flow statement, complete specifications of outflows and inflows are furnished below these titles involving the net cash flow (or use)
  • 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’
  • Though, unless it is stipulated precisely as to which approach is to be imbibed, the cash flow statement may first be outlined by an indirect method as is prepared by most organisations in work.

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.

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