Cash Flow Statement

DEFINITION :-
Cash flow statement does not include amount of future cash dealings that are on credit. Cash is not same as net income in income statement and balance sheet. There are 3 types of business activities regarding cash dealings. operating , investing and financing activities.
The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter.

Structure of the Cash Flow Statement

The most commonly used format for the cash flow statement is broken down into three sections:  cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.

Cash flows from operating activities are related to your principal line of business and include the following:

Cash receipts from sales or for the performance of services

Payroll and other payments to employees

Payments to suppliers and contractors

Rent payments

Payments for utilities

Tax payments

Methods of Cash flow statement:

There are 2 basic methods to make cash flow statements;

1.             Direct Method.

2.            Indirect Method...


There are three main sections on the statement of cash flow:

1.        Operating activities

2.        Investing activities

3.        Financing activities

 



SAMPLE :-

OTHER :-
Under the direct method, you are basically analyzing your cash and bank accounts to identify cash flows during the period.  You could use a detailed general ledger report showing all the entries to the cash and bank accounts, or you could use the cash receipts and disbursements journals.  You would then determine the offsetting entry for each cash entry in order to determine where each cash movement should be reported on the cash flow statement.
Another way to determine cash flows under the direct method is to prepare a worksheet for each major line item, and eliminate the effects of accrual basis accounting in order to arrive at the net cash effect for that particular line item for the period
Indirect method the cash flows from operating activities section under the indirect method, you start with net income per the income statement, reverse out entries to income and expense accounts that do not involve a cash movement, and show the change in net working capital.  Entries that affect net income but do not represent cash flows could include income you have earned but not yet received, amortization of prepaid expenses, accrued expenses, and depreciation or amortization.  Under this method you are basically analyzing your income and expense accounts, and working capital...

Propertyplant and equipment

DEFINITION:-
A  company asset that is vital to business operations but cannot be easily liquidated. The value of property, plant and equipment is typically depreciated over the estimated life of the asset, because even the longest-term assets become obsolete or useless after a period of time.
The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges are to be recognized.

·        Property, plant and equipment are tangible

·        Cost of an item of property, plant and equipment shall be recognized as an asset;

·        Cost of property, plant and equipment includes;

(a)   Its purchase price,

(b) Including import duties

(c) Non-refundable purchases taxes, after deducting trade Discounts and rebates.

(d) Cost incurred to bring it to the point of allocation...

 OBJECTIVES :-

           The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment.
The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment.

Property, plant and equipment are tangible items that:

(a)  These items are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes;

(b)  Expected to be used during more than one period.

The cost of an item of property, plant and equipment shall be recognized as an asset if, and only if: 

(a)  It is probable that future economic benefits associated with the item will flow to the entity; and

(b)  The cost of the item can be measured reliably..

 
SCOPE :-

Certain assets have unlimited useful life such as land and they are not depreciated. Other assets such as buildings, vehicles, etc. lose their value over their useful life and are called depreciable fixed assets.

Since fixed assets are used for a period of more than one year, we must have a mechanism to expense out the cost of the fixed assets on some systematic basis. This process of allocation of fixed asset cost over period is called depreciation.

Each fixed asset has some useful life, for example say 2 year in case of a computer. Most assets are scraped but some may have certain value at the end of their life, for example we may expect to get considerable proceeds from selling a vehicle at the end of its useful life, this value at the end of the useful life is of an asset is called its residual value, salvage value or scrap value. We only depreciate that portion of cost which exceeds the salvage value. In other words the depreciable amount is cost minus salvage value...

Recognition:

The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:

1.                     it is probable that future economic benefits associated with the item will flow to the entity;  and 

2.                     the cost of the item can be measured reliably.