[Solved] Cash flow statement is prepared as per accounting standard (2024)

FAQs

Is the cash flow statement prepared as per accounting standard? ›

A cash flow statement refers to a statement showing the cash inflows and outflows or the financial position of a business during different intervals of time in terms of cash and cash equivalents. Its accounting treatment is done under Accounting Standard 3.

Answer: A Cash Flow Statement is a statement showing inflows and outflows of cash and cash equivalents from operating, investing and financing activities of a company during a particular period. It explains the reasons of receipts and payments in cash and change in cash balances during an accounting year in a company.

Free Cash Flow = Net income + Depreciation/Amortization – Change in Working Capital – Capital Expenditure. Operating Cash Flow = Operating Income + Depreciation – Taxes + Change in Working Capital.

The Standard deals with the provision of information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement which classifies cash flows during the period from operating, investing and financing activities.

The cash flow statement should report cash flows during the period classified by operating, investing and financing activities.

A typical cash flow statement comprises three sections: cash flow from operating activities, cash flow from investing activities, and cash flow from financing activities.

The cash flow statement is a solid measure of a company's strength, profitability, and future outlook of a company. The importance of the cash flow statement is that it measures the cash inflows or cash outflows during the given period of time. This knowledge informs the company's short- and long-term planning.

The cash flow statement is believed to be the most intuitive of all the financial statements because it follows the cash made by the business in three main ways: through operations, investment, and financing. The sum of these three segments is called net cash flow.

The primary purpose of the statement is to provide relevant information about the agency's cash receipts and cash payments during a period.

Example of a cash flow statement

Red dollar amounts decrease cash. For instance, when we see ($30,000) next to “Increase in inventory,” it means inventory increased by $30,000 on the balance sheet. We bought $30,000 worth of inventory, so our cash balance decreased by that amount.

What are the three types of cash flow statements? ›

The main components of the CFS are cash from three areas: Operating activities, investing activities, and financing activities.

To effectively memorize these standards, it's essential to employ a combination of techniques such as active recall, spaced repetition, mnemonic devices, and consistent practice. These methods can help you retain complex information more efficiently and ensure you have a solid foundation in accounting standards.

The Accounting Standards Codification (ASC) is a systematic framework of U.S. accounting standards and principles. Read more to ensure you're compliant. Accounting Standards Codification (ASC) is a systematic framework used in the United States to organize and present accounting standards and principles.

Statements of Financial Accounting Standards were published to address specific accounting issues, with a view to enhancing the accuracy and transparency of financial reporting. There was a lengthy public consultation about the potential consequences of a rule change before an SFAS was published.

4.5. 20 GAAP requires cash flow activity from blended component units to be presented on the statement of cash flows; however, the statement should not contain cash flow activity from discretely presented component units.

A company is required to present a statement of cash flows that shows how its cash and cash equivalents have changed during the period. Cash flows are classified as either operating, investing or financing activities, depending on their nature.

The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.

AS 26 defines an intangible asset as an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes. 2.