Introduction: Cash Flow Statement is an important part of the Financial Statements of an enterprise. It shows the inflow and outflow of Cash during a particular period. It is an analytical tool to check the short term ability of a company to pay its coming liabilities. It comprises of three activities called Operating Activities, Investing Activities and Financing Activities.
Operating activity is the most important section of the Statement of
Operating Activities can be reported using any of the following methods:
1. Indirect Method: It starts from Net Income and adjusts it to arrive at net cash provided by operating activities.
2. Direct Method: It shows directly the cash receipts and payments from operations of the business. Some T-accounts are prepared in this method to arrive at the cash flows.
Investing Activity shows the inflow and outflow of Cash due to sale or purchase of Assets and/or Investments. Example: Purchase of Fixed Asset, Sale of Investments.
Financing Activity shows flow of Cash from Issuance or buy-back of Shares, redemption of debentures etc.
To State:
- Cash Flow Statement of Forten Company for the year ended on December 31, 2017 using Indirect Method and disclose any non-cash Investing and Financing Activity.
- Analysis of Cash Flow Statement with respect to payment of dividend.
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Chapter 16 Solutions
Fundamental Accounting Principles
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