Cash Flow Statement

A Cash Flow Statement shows how cash came into the business and how cash went out during a period.

Profit and Loss shows profit.

Balance Sheet shows position.

Cash Flow Statement shows cash movement.

Riya Stationery Ltd. may earn profit, but she still needs to know how much cash came from customers, how much cash was paid for rent and salary, how much cash was spent on machines, and how much cash came from loans or shares.

It also helps explain why cash balance is low even after earning profit.

Simple line: Cash Flow Statement shows the journey of cash.

Cash Flow Statement is needed because profit does not always mean cash is available.

It shows whether the business can pay bills.

It shows where cash came from.

It shows where cash was used.

It helps us understand whether cash came from business operations, loans, or asset sales.

It helps investors and lenders understand cash health.

Simple line: Cash Flow Statement tells whether the business has real cash movement, not just accounting profit.

Goods sold on credit for Rs.1,00,000 may increase profit, but cash is not received yet.

A company may buy a machine for Rs.50,000 cash. Cash decreases, but the full machine cost may not become expense immediately.

A company may take a loan of Rs.2,00,000. Cash increases, but this is not profit.

Profit is calculated using accounting rules.

Cash is actual money available.

A business can show profit and still struggle to pay bills if customers have not paid in cash.

Simple line: Profit is accounting result. Cash is actual money available.

Riya Stationery Ltd. sells notebooks, pens, and school bags.

During the year, cash received from customers was Rs.4,00,000.

Cash paid for rent and salary was Rs.1,50,000.

Cash paid to suppliers was Rs.1,80,000.

A machine was bought for cash Rs.70,000.

Loan taken from bank was Rs.1,00,000.

Loan repaid was Rs.30,000.

At the end, Riya wants to know whether cash increased or decreased, where cash came from, and where cash went.

The Cash Flow Statement answers these questions.

Simple line: Cash Flow Statement explains the movement of cash during the year.

Cash inflow means cash coming into the business.

Examples of cash inflow are cash sales, cash received from debtors, loan taken, shares issued, and asset sold.

Cash outflow means cash going out of the business.

Examples of cash outflow are rent paid, salary paid, suppliers paid, machine purchased, loan repaid, and dividend paid.

Every cash flow item should be checked as inflow or outflow.

Simple memory line: Inflow = cash comes in. Outflow = cash goes out.

Cash flows are divided into three activities.

Operating activities show cash from normal business work.

Investing activities show cash from buying or selling long-term assets.

Financing activities show cash from owners and lenders.

Example: cash received from customers is operating.

Example: machine purchased is investing.

Example: loan taken is financing.

Simple line: Operating = daily business. Investing = assets. Financing = capital and loans.

Operating activities are related to the main business operations.

For a stationery company, operating cash inflows include cash received from customers and cash received from debtors.

Operating cash outflows include cash paid to suppliers, salary paid, rent paid, and electricity paid.

Example: cash received from customers Rs.4,00,000 and cash paid for expenses Rs.3,00,000.

Cash from operating activities = Rs.1,00,000 positive.

This means regular business work generated cash.

Simple line: Operating activities show cash from regular business work.

Investing activities are related to long-term assets.

Examples of cash outflow are buying machine, buying furniture, and buying land or building.

Examples of cash inflow are selling machine, selling furniture, and selling investment.

Example: company buys machine for Rs.70,000.

This is cash outflow from investing activities.

Negative investing cash flow is not always bad because the company may be buying useful assets.

Simple line: Investing activities show cash used for or received from long-term assets.

Financing activities are related to money from owners and lenders.

Examples of cash inflow are issue of shares, issue of debentures, and loan taken.

Examples of cash outflow are loan repaid, debentures redeemed, and dividend paid.

Example: company takes bank loan Rs.1,00,000.

This is cash inflow from financing activities.

Example: company repays loan Rs.30,000.

This is cash outflow from financing activities.

Simple line: Financing activities show cash from capital and borrowings.

Positive cash flow means cash inflow is more than cash outflow.

Example: cash inflow Rs.5,00,000 and cash outflow Rs.4,00,000.

Positive cash flow = Rs.1,00,000.

Negative cash flow means cash outflow is more than cash inflow.

Example: cash inflow Rs.3,00,000 and cash outflow Rs.4,00,000.

Negative cash flow = Rs.1,00,000.

Simple line: Positive cash flow means cash increased. Negative cash flow means cash decreased.

A simple Cash Flow Statement starts with Cash Flow from Operating Activities.

Operating section can show cash received from customers, less cash paid for expenses, equals net cash from operating activities.

Investing section can show cash received from sale of assets, less cash paid to buy assets, equals net cash from investing activities.

Financing section can show cash received from shares, loans, or debentures, less cash paid for loan repayment or dividend, equals net cash from financing activities.

Net Increase or Decrease in Cash = Operating + Investing + Financing.

Add opening cash balance to get closing cash balance.

This is a simplified learning format. Actual formats may be more detailed.