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Cash flow statement

While preparing the funds flow statement, if the term ‘funds’ is interpreted as ‘cash’ the funds flow statement so prepared takes the form of cash flow statement. Whereas the funds usually considers the transactions affecting the movement of working capital (i.e. either current assets or current liabilities or both), the cash flow statement considers the movement only in respect of cash. The principles on the basis of which the cash flow statement is prepared are similar to those used for preparing the funds flow statement.

The way in which cash flow statement can be prepared, takes the following form.

Opening cash balance

Add: sources of cash inflow

Less: applications of cash

Closing balance

As such, in simple words, the cash flow statement takes the form of receipts and payment statement. However, all the information required to prepare the cash flow statement in this form may not be available from the annual financial statement. As such, the cash flow statement is prepared in the same manner in which the funds flow statement is prepared with the difference that instead of showing net increase or decrease in working capital (as in case of funds flow statement), the increase or decrease in individual items of current assets and current liabilities are disclosed in cash flow statement.

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