CBSE Class 12 Accountancy Cash Flow Statement Notes Set B

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Revision Notes for Class 12 Accountancy Part 2 Chapter 6 Cash Flow Statement

Class 12 Accountancy students should refer to the following concepts and notes for Part 2 Chapter 6 Cash Flow Statement in Class 12. These exam notes for Class 12 Accountancy will be very useful for upcoming class tests and examinations and help you to score good marks

Part 2 Chapter 6 Cash Flow Statement Notes Class 12 Accountancy

CHAPTER 12

CASH FLOW STATEMENT

Meaning : It is a statement that shows flow (inflow or outflow) of cash and cash equivalents during a given period of time. As per Accounting Standard3

(Revised) the changes resulting in the flow of cash & cash equivalents arises on account of three types of activities i.e.

(1) Cash flow from Operating Activities.

(2) Cash flow from Investing Activities.

(3) Cash flow from Financing Activities.

Cash : Cash comprises cash in hand and demad deposits with bank. 

Cash equivalents : Cash equivalents are shortterm higly liquid investment that are readily convertible into known amount of cash and which are subject to an insignificant risk of change in the value (of shotterm investment). Generally theses investment have a maturity period of less than three months.

Some example of cash equivalent : Bank overdraft, cash credit, shortterm deposits, maketable securities, treasury bills, commercial papers, money market funds (mutual fund), investment in preference shares if redeemable within three months and ensure that there is no risk of the failure of the company. Some type of transaction which are considered movement between cash and cash equivaletns are given below :

1. Cash deposited into bank.

2. Cash withdrawn from bank.

3. Sale of cash equivalent securities (e.g. sale of short term investment, sale of commercial papers)

4. Purchase of cash equivalent securities (e.g. Purchase of shortterm investment, Purchase of Treasury bills).

The above types of transaction are part of cash and cash equivaltens, so these are included in opening and closing cash and cash equivalent only. So these types of transanction not be included in cash from different activities like operating, investing, financing activities.

Preparation of cash flow statement :

Cash flow from operating activities _______

Cash flow from investing activities _______

Cash flow from financing activities _______

Net increase/decrease in cash & cash equivalent (Total of the above three activities) Add : Cash & Cash equivalent in the

beginning of the year (Given in opening balance sheet) _______

Cash & Cash equivalent at the end of the year _______

Note : The student should ensure that the cash & Cash equivalent at the end of the year as calculated above will be same as cash & cash equivalent given in closing balance sheet


OBJECTIVES OF CASH FLOW STATMEMENT :

1. To ascertain how mach cash or cash equivalents have been generated or used in different activities i.e. operating/investing/financing activity.

2. To ascertain the net changes in cash and cash equivalents.

3. To assesss the causes of difference between actual cash & cash equivalent and related net earning/income.

4. To help in formulation of financial policies such as dividend policy, fixed assests policy, capital structure related policy.

5. To help in shortterm financial planing.

6. To ascertain the liquidity of enterprises

LIMITATIONS OF CASH FLOW STATEMENT

1. Non cash transaction are not taken into consideration like sahres or debentures issued to vendores, deprecaition charged during the year.

2. It is a statement related with past data.

3. It is not used for judging the profitability of enterprises.

4. Accrual accounting concept is ignored in this statement e.g. credi sales, credit purchases, outstanding expesnes, accrued income are not included. Computation of Cash flow from different activities.

(1) Cash flow from operating activities : operating activities are the main revenue generating activities of the enterprises. It includes tha transaction also which are not included in investing and financing activities. Accounting standard 3 (Revised) has suggested two methods of computing net cash from operating activities (A) Direct Method (B) Indirect Method. (C) Indirect Method of calculating the cash flow from Operating Activities :

Under this method Net Profit Before Tax and Extraordinary Item is the starting point further calculations.

Calculations of Net Profit Before Tax Extra ordinary Item :

Difference between closing balance and opening balance of profit & loss A/c ____

Add : 1. Proposes divident for current year ____

2. Interim Divident paid during the year. ____

3. Profit Transferred to Reserve

(If reserve of current year increased from previous year) ____

4. Provision for Taxation made durning the year ____

Less : 1 Refund of Tax credited to P & L A/c ____

2. Extraordinary item if any Credited to P & L A/c ____

Net Profit Before Tax and Extraordinary Item Extraordinary items : These items are not related to normal business operation and not included in investing and financing activities

 

CBSE Class 12 Cash Flow Statement

CBSE Class 12 Cash Flow Statement

CBSE Class 12 Cash Flow Statement

CBSE Class 12 Cash Flow Statement

Please click the link below to download pdf file for CBSE Class 12 Cash Flow Statement

Part 1 Chapter 04 Reconstitution of a Partnership Firm Retirement/Death of a Partner
CBSE Class 12 Accountancy Retirement Or Death Of A Partner Notes
Part 1 Chapter 05 Dissolution of Partnership Firm
CBSE Class 12 Accountancy Dissolution Of A Partnership Firm Notes
Part 2 Chapter 03 Financial Statements Of a Company
CBSE Class 12 Accountancy Financial Statement Of Companies Notes

CBSE Class 12 Accountancy Part 2 Chapter 6 Cash Flow Statement Notes

We hope you liked the above notes for topic Part 2 Chapter 6 Cash Flow Statement which has been designed as per the latest syllabus for Class 12 Accountancy released by CBSE. Students of Class 12 should download and practice the above notes for Class 12 Accountancy regularly. All revision notes have been designed for Accountancy by referring to the most important topics which the students should learn to get better marks in examinations. Our team of expert teachers have referred to the NCERT book for Class 12 Accountancy to design the Accountancy Class 12 notes. After reading the notes which have been developed as per the latest books also refer to the NCERT solutions for Class 12 Accountancy provided by our teachers. We have also provided a lot of MCQ questions for Class 12 Accountancy in the notes so that you can learn the concepts and also solve questions relating to the topics. We have also provided a lot of Worksheets for Class 12 Accountancy which you can use to further make yourself stronger in Accountancy.

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