FAM/U5 Topic 8 Preparation of Cash flow Statement and it’s Analysis
There are two methods of its preparation. The first one is that it will commence with opening Cash and Bank balances and with this, certain amounts are to be added on account of issue of Shares and Debentures, Cash received from Debtors, selling fixed assets etc.
The following items are to be deducted from the above total: payment to Creditors, payment for liabilities and expenses, purchases of assets, payments for dividend and taxation etc. the balance will represents the closing balance of Cash and Bank.
The second method is to be followed particularly when the amount of purchases, sales, and expenses are not given. This will be similar to Fund Flow Statement. The only difference is that the total changes in working capital are to be considered in Fund Flow Statement, but here, net increase or decrease of each component of current assets and current liabilities is to be recognized.