List out the various uses of Cash Flow statement, also explain the steps in preparing cash flow statements.

By Paul Skumar

Was this a homework question you are to answer? If so, we don't just do homework for you. Make an attempt yourself first and someone can let you know what they think.

If it's homework, your book must have listed specific steps for doing a cash flow, because in reality there aren't "steps." It involves a lot of different things and can be done in a lot of different orders. So if that's homework, I think only your textbook (or notes) can answer that one. (That is, what are they calling a "step"?) If that's not homework, then it's really impossible to answer because cash flows involve so much stuff and you have to learn pieces of it at a time -- and even then you can't really cover everything.

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Reply: Statement of changes in financial position is the Cash statement as for as I learned. Now for MBA studying purpose in depth, I need crisp answer apart from Books. Extract from books may be given for my use.

As I am in the middle age of 47, I can not go deep into the study. If possible, give a short tips to know more about cash & fund flow statement.

Paul Skumar

Well, first off, I don't know how to do a fund flow statement. That isn't anything I ever learned and don't quite understand what it is.

I'm not sure what you're wanting to know about a cash flow statement. First you asked for steps, but that's long and complicated and involved. So I don't know if you're just looking for what it is rather than how to do one? I also know that international ones are done differently than U.S. ones, and I'm not terribly familiar with those. But I also think an MBA is probably only an American term, so I'll go with that.

It's showing where your cash went to or where it came from. It doesn't get specific about every little transaction, but rather lumps stuff together and then groups them into categories. If you want to read a cash flow statement, it helps to first know the main categories. In the U.S. those are operating activities, investing activities and financing activities.

It's easier to explain investing and financing first. Basically investing is the asset side of your balance sheet. Assets are things that companies invest in in order to run the company so they can earn their profit (or accomplish whatever other goal they have). So the purchase of a piece of machinery is an investment. Basically all non-current assets are investments. So that section is related to transactions of that sort, whether purchasing or selling.

The financing section is basically the liability & equity sections of the balance sheet. A company needs financed somehow, either with debt or equity. Issuing stock, payments on a long-term loan and paying out a dividend are financing-related activities. Basically, all non-current liabilities and equity accounts are financing related.

The operating activities are those related to the day-to-day operations of the company. So selling stuff, buying inventory or supplies, paying current bills like salaries and utilities, etc. are all your operating activities. Current assets like inventory are not "investments" but rather are related to current operations. For instance, you buy a piece of machinery (investment) in order to produce an inventory product to sell (operating). Something like accounts payable is just vendors extended short-term credit, not "financing." Basically, the operating section of the income statement, and the current assets and current liabilities are those that are related to operating activities.

The income statement is important, but no amount of net income does you any good without cash. You have to have cash flow in order to run a business, so that's important too. (The cash flow statement was added as a 4th required statement -- I'm thinking early to mid 90's but not sure I'm remembering right.) The 3 sections give an idea of what types of things are going on within the company. (Like high cash inflows in financing and high cash outflows in investing can mean they are expanding.)

That is just an overview of the sections, which is a main component of a cash flow statement. But I don't know if that's answering your question because I'm really not sure what you're wanting. In terms of actually doing one, that's way more complicated.

And yes, a 47 year old can go deep into study. People do it all the time. If you're going for an MBA you have to study just as much as anyone else - your age is irrelevant. It's the class requirements themselves that determine what and how much to study.

Dear morgaine300, thanks for your instant answer as well as to screw up my courage.

You're welcome. :-)

From the following Balance sheet make out cash flow statement as per as on 31st March 2011




Liabilities Assets
Equity share capital 20,000 20,000 cash 8,000 10,000
P/C 50,000 90,000 Bank 22,000 20,000
Bank loan 10,000 - Debtor 10,000 20,000
Creditors 15,000 20,000 Stock 25,000 15,000
O/S Exp 5,000 1,000 Fixed assets 2,35,000 2,75,000
Provision for taxation20,000 25,000
Unclaimed dividend 4,000
3,00,000 3,40,000 5,00,000 3,40,000


Net profit for the year after providing is 20,000 for dep. Was Rs. 60,000. During the yr.company declared equity dividend @ 10% and paid Rs. 15,000 as income tax.