Cash Flow Statement
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30MODULE - 6A
Cash Flow Statement
Analysis of Financial Statements
30
Notes
CASH FLOW STATEMENT
In the previous lesson, you have learnt various types of analysis of financial
statements and its tools such as comparative statements, common size
statement and trend analysis, etc. You have also learnt various kinds of
accounting ratios such as liquidity, activity, profitability, solvency, etc. You
have learnt that accounts are mainly maintained on accrual basis but cash
also plays significant role. Cash is mainly generated for operating activities
which is buying assets and discharging liabilities. Cash is also raised from
the issue of shares and debentures or loans but adequate cash should be
available for use in time and no cash should remain idle. For this another
tool of analysis is used which is cash flow statement.. In this lesson, you
will learn about cash flow statement and its methods of preparation.
OBJECTIVES
After studying this lesson, you will be able to :
state the meaning of cash flow statement;
explain objectives of cash flow statement;
explain the method of preparing cash flow statement as per format;
state the limitations of cash flow statement.
30.1 MEANING AND OBJECTIVES
Cash plays a very important role in the economic life of a business. A firm
needs cash to make payment to its suppliers, to incur day-to-day expenses
and to pay salaries, wages, interest and dividends etc. In fact, what blood
is to a human body, cash is to a business enterprise. Thus, it is very essential
for a business to maintain an adequate balance of cash. For example, a
concern operates profitably but it does not have sufficient cash balance to
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ACCOUNTANCY
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