8 supplementary material wwwicaiorg wwwicmaiorg 79

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7.8 SUPPLEMENTARY MATERIAL www.icai.org www.icmai.org 7.9 ASSIGNMENT 1. Define fund flow statement. Examine its uses and significances for management 2. What are the causes for changes in working capital. Explain 3. “ a fund flow statement is better substitute for an income statement”. Discuss. 4. Suggest some items which may be added back to net profit to get a total fund provided by profitable operation for fund flow statement. Illustrate your answer. 5. Is fund flow statement necessary because of the limitations of profit and loss account and balance sheet. In what respect is the fund statement equally significant. 6. “ fund flow statement presents a decision view of business”. Comment. 7.10 SUGGESTED READINGS 1. James Jiambalvo: Managerial Accounting , John Wiley & Sons. 2. Khan & Jain: Management Accounting, Tata McGraw Hill Publishing Co. 3. J.Made Gowda: Management Accounting, Himalaya Publishing House. 4. S.N.Maheswari: Management Accounting, Sultan Chand & Sons. 5. N.P.Srinivasan & M.Sakthivel Murugan: Accounting For Management, 7.11 LEARNING ACTIVITY Collect the disclosed consecutive two years balance sheet for any one information sector company from website prepare fund flow statement and evaluate the performance. 7.12 KEY WORDS Fund fiow, Working capital, Fund from operation.
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110 LESSON 8 CASH FLOW STATEMENT 8.1 INTRODUCTION A cash flow statement is a statement depicting change in cash position from one period to another. When the concept of funds is used to mean ‘cash’ the funds flow analysis would be called cash flow analysis. 8.2 OBJECTIVES After reading this lesson the student should be able to: understand the meaning of cash flow statement. Understand the difference between the fund flow statement and cash flow statement. Understand the steps in preparation of cash flow statement. 8.3 CONTENT 8.3.1 Meaning of cash flow statement 8.3.2 Difference between fund flow statement and cash flow statement 8.3.3 Distinction between cash flow statement and receipts and payments a/c 8.3.4 Limitation of cash flow statement 8.3.5 Managerial uses or advantages of cash flow analysis 8.3.6 Steps in preparation of cash flow analysis 8.3.1 MEANING OF CASH FLOW STATEMENT It is an analysis based on the movement of cash and bank balance. Such movements of cash are depicted in a statement called cash flow statement. It is a statement of changes in financial position prepared on cash basis. While preparing cash flow statement, two types of cash flows, viz., actual cash flows and notional cash flows are identified. Actual cash flows refer to the actual movements of cash into or out of business. Purchase of fixed assets for cash, borrowing from bank or financial institutions, redemption of debentures etc are a few examples of cash flows. But notional cash flows result only in the case of increase or decrease in current assets. Notional cash flows result in indirect cash movements into or out of business. For example, increase in debtors does not result in any actual cash out flows since it is part of credit sales. But at the same time, cash flows out of
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