FORMAT FOR PREPARING CASH FLOW STATEMENT - start with PBT

(A) CASH FLOW FROM OPERATING ACTIVITIES (Data: Income statement, CA and CL) Sign Primary Source

Profit before tax/Losses +/- 183925

Adjustments before working capital changes

(1) Add back all non-cash expenses + 61625 Income stmt

(i) Depreciation + 25000
(ii) Amortization +
(iii) Provisons +

(2) Subtract/add profit/loss on sale of non-current asset +/- Income stmt

(i) Gain on sale of equipment/plant/land - -24250
(ii) Loss on sale of equipment/plant/land +
(iii) Gain on sale of Mutual Funds -
(iv) Loss on sale of Mutual Funds +

(3) Reclassify interest/dividend income under investing activities - Income stmt

(i) Dividend income received -

(4) Reclassify interest paid under financing activities + Income stmt

(i) Interest expense/paid + 58750
(ii) Interest paid on bonds +
 Note: US GAAP treats interest paid as operating activities and hence, step 4 is not
relevant under US GAAP.

Working Capital Changes Balance sheet

(1) Increase in current assets -

(i) Change in A/c receivables - -70030

(ii) Change in Inventory (Raw Material) - -20450

(iii) Change in Inventory (Finished Goods) - -99680
(iv) Change in Prepaid Insurance - -65000
(v) Change in prepaid expenses -

(2) Decrease in current assets +

(3) Increase in current liabilities +
(i) Change in A/c Payable +
(ii) Change in Accrued expenses payable +

(4) Decrease in current liabilities -

Taxes Paid (Last Year's Tax Payable + Total Tax in Income Stmt - Deferred Tax in B/S
- Current Year's Tax Payable) - -39150
 10,740
+/-
Net cash generated from/used in operating activities (A)

(B) CASH FLOW FROM INVESTING ACTIVITIES (Data: Interest/Divi income, non-current assets)

(1) Reclassification of interest/dividend income + 0

(2) Purchase of fixed assets - -945000

(3) Proceeds from sale of fixed assets + 215500
(4) Purchase of investments -
(5) Proceeds from sale of investments +
(6) Investment in a subsidiary -
(7) Acquisition of a company (Assets acquired + Goodwill added) -
(8) Purchase of Mutual Funds -
(9) Proceeds from sale of Mutual Funds +
-729500
+/-
Net cash generated from/used in investing activities (B)

(C) CASH FLOW FROM FINANCING ACTIVITIES (Data: Interest Paid, Dividend paid, non-current liabilities)

(1) Interest Paid - -58750

(2) Dividend paid - -10000

 (3) Issuance of share capital with or without premium +
(4) Buy back of shares with or without premium (shown as treasury stock in the
balance sheet) - -26000
(5) Proceeds from loan/borrowings (including short term borrowings; short term
and long term debts) + 710000
(6) Repayment of loan/borrowings (including short term borrowings; short term
and long term debts) -
(7) Decrease in long term debt -
615250
Notes -103,510

(a) Issue of bonus shares does not affect the cash flow as it involves transfer
from Reserves & Surplus account to Capital account.

(b) Changes in Retained earnings (part of Reserves & Surplus) due to net income
or net losses during the accounting period are not considered for cash flow
statement as computation
of operating cash flows starts from Profit before tax/Losses which include
such changes.

+/-
Net cash generated from/used in financing activities (C)

Net changes in cash and cash equivalents during the year (A+B+C) A+B+C
Opening Balance of cash and cash equivalents
Closing balance of cash and cash equivalents
Remarks

* Bad debt, tax provisons

Irrespective of whether interest income/dividend income is

received or not, you need to subtract such amount from
Cash flow from operating activities.

Irrespective of whether interest expense is paid or not, you

need to add back such amount from Cash flow from
operating activities. Under financing activities, consider
interest amount actually paid.
Profit/loss on sale of asset/investment = (Sale realization –
book value at the time of sale)
While considering changes in current assets and current
liabilities, exclude dividend payable/proposed dividend as
this would be part of financing activities.

While calculating changes in receivables, use the following

formula:
Closing balance of gross amount of receivables – [opening
balance of gross amount of receivables – actual bad debts
during the year + bad debts recovered during the year
which was written off earlier]

Any changes in short term debt/borrowing appearing as

current liability should be considered under financing
activities.

Taxes paid (if not given) = (Opening balance of taxes

payable + income tax expense for the current year from
income statement – closing balance of taxes payable)
Under investing activities, consider interest/dividend
income actually received.
Purchase of fixed assets (if not given) = [Closing balance of
net assets – (opening balance of net assets –
depreciation/amortization during the year)]

Under financing activities, consider

interest amount actually paid.
1. Actually paid
2. While computing changes in retained earnings, compare
the difference with net income. If net income is higher that
the difference in RE then the difference is to be considered
as dividend.
1. Issuance of share at a premium can be shown as one
item or two items as per the given balance sheet.
2. If any asset is acquired by issuing either shares or
debentures then such a transaction does not affect cash
flow.
3. Issuance of bonus shares does not affect the cash flow.