Comparative Study Of Cash Flow Statement

Abstract

A cash flow statement is prepared by an entity; it is one of the most important statements. It shows cash receipts from major sources and cash payments for major uses during a period. It may be prepared at quarterly intervals but at least at yearly intervals. It provides useful information about an entity’s activities in generating cash from operations. It informs about programme to repay debts, distribute dividends or reinvest to maintain or expand its operating capacity. It gives also information about its financing activities, both debt and equity, and about its investment in fixed assets or current assets other than cash. In other words, a cash flow statement lists down various items and their respective magnitude which bring about changes in the cash balance between two balance sheet dates. All the items whether current or non-current which increase or decrease the balance of cash are included in the cash flow statement. Therefore, the effect of changes in the current assets and current liabilities during an accounting period on cash position is assessed from its perusal. The depiction of all possible sources and applications of cash in the cash flow statement helps the financial manager in short-term financial planning in a significant manner; interest payment on debentures and dividend pay-off to shareholders can be met out of cash only. This Article is based on the practice followed and instruction for its preparation contained in the various text books for the guidance of the students and accountants. It is hoped that the content of this Article would help the readers to understand Cash-flow statement properly.