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ACCOUNTING STANDARD-3

ACCOUNTING STANDARD-3. CASH FLOW STATAEMENTS. PURPOSE. To provide information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement. Classification of cash flows into operating, investing and financing activities. SCOPE.

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ACCOUNTING STANDARD-3

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  1. ACCOUNTING STANDARD-3 CASH FLOW STATAEMENTS

  2. PURPOSE • To provide information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement. • Classification of cash flows into operating, investing and financing activities.

  3. SCOPE An enterprise should prepare a cash flow statement and present the same along with the financial statements for each period.

  4. RELEVANT DEFINITIONS • Cash comprises cash on hand and demand deposits with banks. • Cash equivalents are short term, highly liquid investments that are readily convertible into known amounts of cash. • Cash flows are inflows and outflows of cash and cash equivalents.

  5. RELEVANT DEFINITIONS • Operating activities are the principal revenue-producing activities of the enterprise. • Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. • Financing activities are activities that result in changes in the size and composition of the owner’s capital (including preference share capital in the case of a company) and borrowings of the enterprise.

  6. PRESENTATION OF THE CASH FLOW STATEMENT • The cash flow statement should report cash flows during the period. • The cash flows have to be classified activity-wise into operating, investing and financing activities.

  7. CASH FLOW FROM OPERATING ACTIVITIES EXAMPLES: • Cash receipts from customers, royalties, fees, commission, and other revenue. • Cash payments to suppliers for goods and services. • Cash payments to and on behalf of employees.

  8. CASH FLOW FROM INVESTING ACTIVITIES EXAMPLES: • cash payments to acquire fixed assets. • cash receipts from disposal of fixed assets • Interest & dividend received

  9. CASH FLOW FROM FINANCING ACTIVITIES • Proceeds from issue of share capital. • Proceeds from long term borrowings. • Repayment of long term borrowings.

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