Cash Flow Notes2

Study Material & Notes for the Chapter 12

CASH FLOW STATEMENT

II.  CASH FLOW FROM OPERATING ACTIVITIES

i. Operating Activities

• Operating activities are the activities that constitute the primary or main activities of an enterprise
• These are the principal revenue generating activities (or the main activities) of the enterprise and these activities are not investing or financing activities.
• Cash flows from operating activities generally result from the transactions and other events that enter into the determination of net profit or loss
• The amount of cash from operations’ indicates the internal solvency level of the company, and is regarded as the key indicator of the extent to which the operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise, paying dividends, making of new investments and repaying of loans without recourse to external source of financing.

ii. Operating Activities - Manufacturing/Trading/Service Co

iii. Operating Activities – Finance Companies

Presentation in the Cash Flow Statement

SN	Particulars	Amount
(A)	Net Profit before Tax and Extraordinary Items (as per Working Note)
	Net Profit as per Statement of Profit & Loss or Difference between Closing Balance and Opening Balance of Surplus, i.e., Balance in Statement of Profit & Loss
Add	Transfer to Reserves
	Dividend Payable (Proposed Dividend of previous year) paid during the year Interim Dividend paid during the year
	Provision for Tax for the current year
	Extraordinary Items, if any, debited to the Statement of Profit & Loss
Less	Extraordinary Items, if any, credited to the Statement of Profit & Loss
	Refund of Tax credited to the Statement of Profit & Loss
	Net Profit before Tax and Extraordinary Items
(B)	Items to be Added
	Depreciation
	Interest on Bank Overdraft/Cash Credit
	Interest on Borrowings (Short-term and Long term) and Debentures
	Writing off Underwriting Commission/Share Issue Expenses
	Loss on Sale of Fixed Assets
	Increase in Provision for Doubtful Debts*
(C)	Items to be Deducted
	Interest Income
	Dividend Income
	Rental Income
	Gain (Profit) on Sale of Fixed Assets
	Decrease in Provision for Doubtful Debts*
(D)	Operating Profit before Working Capital Changes (A+B-C)
(E)	Add: Decrease in Current Assets and Increase in Current Liabilities
	Decrease in Inventories (Stock)
	Decrease in Trade Receivables (Debtors and Bills Receivable)
	Decrease in Accrued Incomes
	Decrease in Prepaid Expenses
	Increase in Trade Payables (Creditors and Bills Payable)
	Increase in Outstanding Expenses
	Increase in Advance Incomes
(F)	Less: Increase in Current Assets and Decrease in Current Liabilities
	Increase in Inventories (Stock)
	Increase in Trade Receivables (Debtors and Bills Receivable)
	Increase in Accrued Incomes
	Increase in Prepaid Expenses
	Decrease in Trade Payables (Creditors and Bills Payable)
	Decrease in Outstanding Expenses
	Decrease in Advance Incomes
(G)	Cash Generated from Operations (D+E-F)
(H)	Less: Income Tax Paid (Net of Tax Refund)
(I)	Cash Flow before Extraordinary Items
	Extraordinary Items (+/-)
(J)	Cash Flow from (or Used in) Operating Activities

Working Note

SN	Particulars	Amount
	Net Profit as per Profit & Loss Account or Closing – Opening P&L
	Add:
	Proposed Dividend (Previous year) paid during the year
	Interim/Final Dividend paid on Equity/Preference Shares
	Provision for Taxation (Current Year’s only) – Net of refund
	Transfer from P&L A/c to Reserves
	Loss/Expenses due to extraordinary items debited to P&L
	Less:
	Refund of Tax credited to P&L A/c
	Gain/Income due to extraordinary items
	Net Profit before Tax and Extraordinary Items