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It is correctly said that the Cash Flow Statement provides such

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Added on  2019-09-13

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It is correctly said that the Cash Flow Statement provides such information that theIncome Statement and Balance Sheet do not provide. This is because the IncomeStatement and Balance Sheet are prepared on the accrual basis of accounting. A cash flow statement is a statement showing inflows (receipts) and outflows (payments)of cash for a particular period. It is a summary of sources and applications of cash duringa particular span of time. It analyses the reason for change in the balance of cash betweenthe two balance sheet dates. The term ‘cash’ here stands for cash and cash equivalents. Acash flow statement includes only those items which affect cash. There are certainobjectives of preparing cash flow statement which includes its usefulness for short termfinancial planning, usefulness for preparing the cash budget, study of the trend of cashreceipts and payments, helpful in ascertaining cash flows from various activitiesseparately etc. The term cash and cash equivalents includes cash in hand, cash at bank,short term deposits, short term investments, marketable securities and cheques and drafton hand. Cash flow statement can be prepared using the direct or indirect method.Cash flow statement is classified into three activities which include (1) cash flow fromoperating activities, (2) cash flow from investing activities, (3) cash flow from financingactivities. Operating activities are the main revenue generating activities of an enterprise.As such, they include cash flows from those transactions and events which enter into theascertainment of net profit/loss of the enterprises like cash receipt from sale of goods andrendering of services. Investing activities include the purchase and sale of long termassets such as land, buildings, plant and machinery etc. These activities also include thepurchase and sale of such investments which are not included in cash equivalents likesale of shares or debt instrument of other enterprises. Financing activities are the
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