Accountancy · Class 12 Commerce

Ch 11Cash Flow Statement — Class 12 Accountancy, concept-first.

So far, the financial statements you have studied have been the Position Statement (the Balance Sheet, showing a company's financial position on a particular date) and the Income Statement (the Statement of Profit and Loss, showing operating results over a period).

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Cash Flow Classification

Think about your own monthly allowance. You get some money from your parents (inflow), you spend on snacks, movies, and stationery (outflow), and maybe you save a bit or borrow from a friend.

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Introduction

6.1

Objectives of Cash Flow Statement

A cash flow statement is not just a record of money coming in and going out. Its real purpose is to show where that cash came from and where it was used, sorted into three distinct kinds of business a…

6.2

Benefits of Cash Flow Statement

A cash flow statement is not just a statutory requirement — it is a powerful diagnostic tool. While the Balance Sheet shows a snapshot and the Profit Loss Account shows performance, the cash flow st…

6.3

Cash and Cash Equivalents

Cash and cash equivalents form the foundation of the cash flow statement. Without a clear definition of what counts as "cash," the entire statement would be ambiguous.

6.4

Cash Flows

Cash flow is the movement of cash into or out of a business. It is not the same as profit. Profit is an accounting concept that includes non-cash items like depreciation and credit sales.

6.5

Classification of Activities for the Preparation of Cash Flow

The cash flow statement is built around one central idea: every transaction a business does falls into one of three activity buckets — operating, investing, or financing.

6.5.1

Cash from Operating Activities

Operating activities are the primary revenue-generating activities of a business — the main things it does to earn money.

6.5.2

Cash from Investing Activities

Investing activities are defined by AS-3 as the acquisition and disposal of long-term assets and other investments that are not included in cash equivalents.

6.5.3

Cash from Financing Activities

Financing activities deal with the long-term funds of the business — the money that comes from owners and lenders.

6.5.4

Treatment of Some Peculiar Items

Extraordinary items are events or transactions that are clearly distinct from the ordinary activities of the enterprise and are not expected to recur frequently or regularly.

+Test Your Understandingi1 question

Q1Classify the following activities into operating activities, investing activities, financing activities, or cash equivalents. | No. | Activi…Preview

6.6

Ascertaining Cash Flow from Operating Activities

Operating activities are the primary revenue-generating activities of a business — the core operations that bring in cash and consume cash.

6.6.1

Indirect Method

5 Q

The indirect method of calculating cash flow from operating activities starts with the net profit or loss as shown by the Statement of Profit and Loss.

+Illustrationsi3 questions

+Test Your Understandingi2 questions

6.7

Ascertainment of Cash Flow from Investing and Financing Activities

4 Q

Cash flow from investing activities and cash flow from financing activities are the two remaining sections of a cash flow statement (after operating activities).

+Illustrationsi2 questions

+Do It Yourselfi2 questions

6.8

+Long Answer Questions4 questions

+Numerical Questions12 questions

Sample & Board Papers

Sample papers and previous-year board questions for this subject.

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