Question
Describe the procedure to prepare Cash Flow Statement.
✓
Answer
The procedure to prepare Cash Flow Statement is described in the following steps in their chronological order.
Step 1: Ascertain the cash flows from operating activities.
Step 2: Ascertain the cash flows from investing activities.
Step 3: Ascertain the cash flows from financing activities.
Step 4: Ascertain net increase or decrease by summing up the amounts of Steps 1, 2, and 3.
Step 5: Write the opening balance of cash and cash equivalents and deduct it from the amount ascertained in Step 4. The resulting figure arrived is the Closing Balance of Cash and Cash Equivalents.
There are two methods viz. Direct Method and Indirect Method for the preparation of Cash Flow Statement.
Note: Preparation of Cash Flow Statement using Direct Method has been excluded from the prescribed syllabus. The format is given since the question has not specified the method explicitly. Students can refer to the direct method for the knowledge purpose.
Step 1: Ascertain the cash flows from operating activities.
Step 2: Ascertain the cash flows from investing activities.
Step 3: Ascertain the cash flows from financing activities.
Step 4: Ascertain net increase or decrease by summing up the amounts of Steps 1, 2, and 3.
Step 5: Write the opening balance of cash and cash equivalents and deduct it from the amount ascertained in Step 4. The resulting figure arrived is the Closing Balance of Cash and Cash Equivalents.
There are two methods viz. Direct Method and Indirect Method for the preparation of Cash Flow Statement.
Note: Preparation of Cash Flow Statement using Direct Method has been excluded from the prescribed syllabus. The format is given since the question has not specified the method explicitly. Students can refer to the direct method for the knowledge purpose.
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