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CASH FLOW ANALYSIS

What is cash flow statement?


A cash flow statement shows inflow and outflow of cash and cash equivalent from various
activities of a company during a particular year.this statement provide useful information
about cash receipts and cash payment from operating ,investing and financial activities of
enterprise.
Explain in brief the term cash?
The term cash consist of cash in hand and demand deposit with banks.
Cash equivalent
The term cash equivalent consist of very short term and highly liquid investments which have
3 months or less maturity period from the date of purchase.

Explain in brief the term cash flow?


Cash flow means the movement of cash and cash equivalent in and out of the enterprise. cash
inflow means cash receipts from operating ,investing and financing activities. cash outflow
means cash payments for operating ,investing and financing activities.
State the objectives of the cash flow statement?
1. To provide useful information about cash flow of the enterprise during a particular
period.
2. To provide useful information for accessing ability of the firm in generating cash and
cash equivalent.
State the benefits or advantages of the cash flow statement?
1. A cash flow statement is used along with other statement to evaluate changes in
that assets and financial structure of an enterprise.
2. A cash flow statement is useful to assess the firms ability in generating cash and
cash equivalent.
3. A cash flow statement is useful in developing model for comparing the present
value of future cash flow of different enterprise.

Explain in brief the term operation activities


Operating activities are the principle revenue producing activities of an enterprise
they indicate the extend to which the operations of an enterprise generate
sufficient cash to meet operating expenses ,they include sales ,purchases direct
expenses, office expenses ,selling expenses etc.

Give examples of cash inflow from operating activities


1. Cash receipts from customers for sale of goods and services
2. Cash receipts from royalties and the fees .
3. Cash receipts from commission and discount.
Give examples of cash outflows from operating activities?
1. Cash payment to suppliers for purchase of goods and services.
2. Cash payments to employees for salaries and allowances.
3. Cash payment of rent ,insurance ,income tax, sale tax etc.
Explain in brief the term investing activities?
These are the activities related to the purchase and sales of fixed assets and long term
investment they represent the extent to which expenses is made by an enterprise to generate
future income and cash flow. They include purchase and sales of fixed asset of long term
investment.
Give examples of cash inflow from investing activities?
1. cash receipts from the sale of tangible fixed assets like building, plant and machinery
etc.
2. Cash receipts from repayments of the loans and advances.
3. Cash receipts from sale of shares , debentures bonds ets.
4. Cash receipts from interest of investment and dividend on shares.
Give examples of cash outflow from investing activities?
1. Cash payment to purchase tangible fixed assets like land and building ,plant and
machinery etc.
2. Cash payment to purchase of shares and debentures, bonds
3. Cash payments from loans and advances given to the third party.
4. Cash payment to purchase of intangible fixed assets like goodwill, patents,
trademarks etc.

Explain in brief the term financing activities?


They are the activities related to long term fund or capital of an enterprise they result in the
change in the size and composition of the owners capital and borrowing of an enterprise.
They consist of activities related to raising and repayment of owners funds and borrowed
capital.
Cash inflow from financing activities
1. Cash receipts from the issue of equity shares and preference shares.
2. Cash receipts from the issue of debentures,bonds.
3. Cash receipts from loans and overdraft

Cash outflow from financing activities


1. Cash repayments of equity shares and preference shares
2. Cash repayment of debenture and bond
3. Cash repayment of loans and overdraft
4. Cash repayment of interest and dividend.
Classify the following activities as investing operating and financing activities
1. Purchase of machinery
2. Cash sales
3. Proceeds from sale of old machinery.
4. Trading commission receipt
5. Proceeds from issue of equity shares
6. Proceeds from issue of debentures
7. Cash receipts from debtors
8. Redemption of preference share
9. Purchase of investment
10. Proceed from sale of investment
11. Purchase of goodwill
12. Cash paid to suppliers
13. Wages and salaries paid
14. Interim dividend paid on equity shares
15. Interest received on debenture
16. Office and administrative expenses paid
17. Bank overdraft
18. Underwriting commission paid
19. Brokerage paid on purchase on investment
20. Manufacturing expenses paid
21. Rent paid