Class 12 accountancy cash flow statement notes
Cash flow statement.... Short & Easy Notes for Board Exam
=> It is a statement which shows inflow of cash and outflow of cash. It is also shows the change in cash position from one accounting period to another.
The main objectives to prepare cash flow statement are as follow:-
i. It is prepared to highlight cash generated from all activity.
ii. It is prepared to indicate the difference between total inflow and total outflow.
iii. It disclose the reason for low cash balance in heavy operating profit.
iv. It helps in Planning the investment of surplus cash.
v. It provides information for planning the short-term needs of the firm.
vi. It helps in dividend decision.
vii. It help to ascertain the liquidity in better way.
#2. Write the importance of cash flow statement?
=> Following are its importance;
i. It is an essential tool of financial analysis for short term planning.
ii. It helps in planning the repayment of loan and replacement of fixed assets.
iii. It helps in efficient and effective management of cash.
iv. It helps to answer the following question:-
(a) what is the liquidity position of the firm?
(b) what are the cause of change in cash position of the firm?
(c) what fixed assets are acquired by the firm?
(d) did the firm use external source of finance to meet its needs?
v. It helps to know the closing cash and bank balance
#3. Write the limitations of cash flow statement?
=> Following are its limitations;
i. It is very difficult to define the term cash.
ii. There are controversy over the number of items like check, stamp, postal order, etc.
iii. It doesn't shows non cash transaction.
iv. It ignores Basic concept of accounting (accrual concept).
v. It doesn't represent net profit or loss.
#4. How cash flow statement is prepared?
=> As per Accounting Standard 3, there are two methods are used to prepare cash flow statement;
i. Direct method.
ii. Indirect method.
THE END
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