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Unit 6: Cash Flow Statement




          5.   Cash payments to suppliers (creditors);                                          Notes

          6.   Cash payments for various operating expenses, i.e., rent, rates, power, etc.
          7.   Cash payments for wages and salaries to employees;
          8.   Cash payments for income tax, etc.

          Indirect Method


          In this method, the net profit (loss) is used as the base and converted to net cash provided by

          (used in) operating activities. The indirect method adjusts net profit for items that affected net


          profit but did not affect cash. Non-cash and non-operating charges in the profit & loss account are
          added back to the net profit, while non-cash and non-operating credits are deducted to calculate


          operating profit before working capital changes. It is a partial conversion of accrual basis profi t

          to cash basis profit. Necessary adjustment are made for increase/decrease in current assets and
          current liabilities to obtain net cash from operating activities.
          Format of Cash Flow Statement
          1.   Cash Flow Statement (Direct Method)

                                  Cash Flow Statement (Direct Method)
                                                                                    (`)
                Cash Flows from Operating Activities
                Cash receipts from customers                                    (xxx)
                Cash paid to suppliers and employees                             xxx
                Cash generated from operations                                  (xxx)
                Income-tax paid                                                  xxx

                Cash flow before extraordinary items                              xxx
                Proceeds from earthquake disaster settlement, etc.               xxx
                Net cash flow from operating activities                  (a)      xxx


                Cash flows from Investing Activities
                Purchase of fi xed assets                                        (xxx)
                Proceeds from sale of equipment                                  xxx
                Interest received                                                xxx
                Dividend received                                                xxx

                Net cash flow from investing activities                           xxx

                Cash flows from Financing Activities
                Proceeds from issuance of share capital                          xxx
                Proceeds from long-term borrowings                               xxx
                Repayments of long-term borrowings                              (xxx)
                Interest paid                                                   (xxx)
                Dividend paid                                                   (xxx)
                Net Cash fl ow from fi nancing activities                 (b)      xxx


                Net increase (decrease) in cash and cash equivalents during the period  (a-b+c)  xxx
                Cash and cash equivalents at beginning of period                 xxx
                Cash and cash equivalents at end of period                       xxx





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