The chapter of Accountancy on Cash Flow Statement class 12, is a pretty long and complicated chapter that comes in not only the main CBSE board exams of Accountancy class 12 but also comes in the Practical Exams. Hence, it becomes one of the very important chapters in Accountancy that covers good weightage as well. In this Leverage Edu blog, we will get to know everything related to the Cash Flow Statement so that you can solve your practical or numerical questions without any hassle in the exams.
Accounts Project Class 12
CBSE Class 12 Accountancy
This Blog Includes:
- What is a Cash Flow Statement?
- Cash vs Cash Equivalent
- What are Cash Flows?
- The Objectives of Cash Flow Statement
- Limitations of the Cash Flow Statement
- Classification of Business Activities
- The Format of Cash Flow Statement
- FAQs
What is a Cash Flow Statement?
As per the chapter of Accountancy on Cash Flow Statement class 12, a cash flow statement refers to a statement showing the cash inflows and outflows or the financial position of a business during different intervals of time in terms of cash and cash equivalents.
All publicly listed entities have to prepare and report a cash flow statement along with other financial statements on an annual basis under the New Accounting Standard-3.
Cash vs Cash Equivalent
According to the chapter on Cash Flow Statement class 12, Cash is divided into two categories which are cash in hand and demand deposits with the bank. On the other hand, cash equivalents are described as short-term highly liquid assets that are readily convertible into known amounts of cash and have a low risk of value change.
What are Cash Flows?
As per the chapter on Cash Flow Statement class 12, cash flows are referred to as the inflows and the outflows of cash and cash equivalent in a business. In other words, it can be explained as the movement in and movement out of cash and cash equivalents. Think of it this way, the receipt of cash from a non-cash item would be termed as cash inflow and the cash payment in respect of such items would be termed as cash outflow.
Accounting for Partnership: Basic Concepts
The Objectives of Cash Flow Statement
Based on the chapter on Cash Flow Statement class 12, the following are the objectives of a cash flow statement:
- When it comes to short-term financial planning, this method comes in handy.
- When it comes to successful cash management, this is a must-have.
- It is useful in the implementation of business policies.
- Assists in the creation and formulation of a cash budget.
- Used to measure cash flow from different activities such as running, saving, and funding.
Limitations of the Cash Flow Statement
Based on the chapter on Cash Flow Statement class 12, the following are various limitations of a cash flow statement:
- It is based on the historical cost principle
- Additionally, it is based on secondary data
- No adherence to basic accounting principles
- A cash flow statement is not a substitute for the income statement
- It ignores all the non-cash transactions
Financial Statements of a Company
Classification of Business Activities
As per the chapter of Cash Flow Statement class 12 and the Accounting Standard-3 (revised), the changes that are resulting in the inflows and outflows of cash and cash equivalents are classified into 3 business activities namely:
Cash Flow from Operating Activities
The cash flow from operating activities covers the enterprise’s key revenue-generating activities as well as other non-investment and non-financing activities.
Operating Activities
| Cash inflow | Cash outflow |
| Cash sales Cash received from debtors Cash received from commission and fees Royalty | Cash purchases Payment made to the creditors Cash operating expenses Payment of wages Income tax |
For a Finance Company
| Cash inflow | Cash outflow |
| Cash received for interest and dividends Sale of securities Cash sales Cash received from debtors Cash received from commission and fees Royalty | Cash paid for interests Purchase of securities Cash purchasesPayment made to the creditors Cash operating expenses Payment of wages Income tax |
For an Insurance Company
| Cash inflow | Cash outflow |
| Premiums and claims received Cash received for interest and dividends Sale of securities Cash sales Cash received from debtors Cash received from commission and fees Royalty | Premium and claims paid Cash paid for interests Purchase of securities Cash purchases Payment made to the creditors Cash operating expenses Payment of wagesIncome tax |
For a Real Estate or Infrastructure Company
| Cash inflow | Cash outflow |
| Rent Received Premiums and claims received Cash received for interest and dividends Sale of securities Cash sales Cash received from debtors Cash received from commission and fees Royalty | Rent paid Premium and claims paid Cash paid for interests Purchase of securities Cash purchases Payment made to the creditors Cash operating expenses Payment of wages Income tax |
Cash Flow from Investing Activities
Investing activities (as specified by AS-3 or the Accounting Standards-3) are the purchase and disposition of long-term assets and other investments that are not included in cash equivalents. The following is a map of cash flow from investment activities:
Investing Activities
| Cash inflow | Cash outflow |
| Sale of fixed assets Sale of investments Interest received Dividends received Rent received | Purchase of fixed assets Purchase of investments |
Cash Flow from Financing Activities
Financing operations, according to AS-3, are those that result in a change in the size and composition of the owner’s capital (including preference share capital) and borrowings (including debentures) from other sources. The following is a chart or table of cash flow generated by financing activities:
Financing Activities
| Cash inflow | Cash outflow |
| Issue of shares in cash Issue of debentures in cash Proceeds from long-term borrowings Securities premium received Increase in the balance of bank overdraft or cash credit account | Payment of loans Redemption of preference shares and debentures Buy-back of equity shares Payment of dividends Payment of interest Premium paid on redemption of preference shares and debentures The decrease in the balance of bank overdraft or cash credit account. |
The Format of Cash Flow Statement
The format of the Indirect Method of the Cash Flow Statement as per the chapter on Cash Flow Statement class 12 and the Accounting Standard-3 (Revised) is as follows:
Numerous vivid examples are included in the NCERT Solutions for Class 12 Accountancy Chapter 6, which helps the students understand the concepts and pick up new information rapidly. These are the answers in accordance with the Class 12 CBSE syllabus. Visit BYJU’S or download BYJU’S – The Learning App for more information on NCERT solutions for Class 12 Accountancy, as well as additional solutions and study tools.
FAQs
Which three cash flow statements are there?
Typically, the cash flow statement is divided into three parts: operating procedures. Financial transactions. financing your actions.
What is a cash flow statement?
A cash flow statement details an organization’s total cash inflows from current activities and outside investment sources. The cash made by the company from operations, investments, and financing is included in the cash flow statement. This total is known as net cash flow.
Why is class 12 cash flow matter?
Knowing the precise amount of cash inflows and outflows from a business’s various operations is made possible by the cash flow statement. To determine the future cash requirements, it is helpful to compare the cash budgets of earlier evaluations with the current situation.
Career in Accountancy
This brings us to the end of this blog on Cash Flow Statement class 12 study notes. We hope that the blog must prove to be helpful for that quick last-minute revision before exams. For more such awesome and amazing reads and for more blogs on study notes, stay tuned with Leverage Edu and we will be back soon with yet another blog on study notes to make you prepare better for your exams.
