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Class 12 Cash Flow Statement: cheat sheet
CBSE Accountancy. Cash and cash equivalents, operating, investing and financing activities, the indirect method, working capital changes, machinery bought and sold, and the net change in cash.
Key ideas
- Cash equivalents are short-term, highly liquid investments with little risk of change in value, such as treasury bills maturing within three months.
- Operating activities are the main revenue-earning ones: receipts from customers, payments to suppliers and employees, income tax paid.
- Investing activities buy and sell long-term assets and investments; for a non-financial company, interest and dividend received are investing too.
- Financing activities change capital and borrowings: issuing shares, raising or repaying long-term loans, paying interest and dividend.
- The indirect method starts from net profit before tax, adds back depreciation, finance costs and losses on sale, and takes out profits on sale.
- An increase in a current asset is deducted and a decrease added; an increase in a current liability is added and a decrease deducted.
- Transactions with no cash, such as buying an asset by issuing shares, are left out.
Remember
| Operating profit before working capital changes | net profit before tax + depreciation + finance costs + loss on sale − profit on sale |
| Cash from operating activities | that profit ± working capital changes − income tax paid |
| Machinery bought | closing + depreciation + book value sold − opening |
| Cash from a sale of machinery | book value + profit (or − loss) |
| Tax paid | opening provision + provision made − closing provision |
| Net profit before tax | closing surplus − opening surplus + transfer to reserve + provision for tax |
| Closing cash and cash equivalents | opening + operating + investing + financing flows |
Watch out
- Showing interest paid on debentures under operating activities instead of financing.
- Adding an increase in trade receivables instead of deducting it.
- Leaving a profit on sale of machinery in operating profit instead of taking it out.
Worked example
Find the cash from operating activities: net profit before tax ₹2,55,000; depreciation ₹49,000; interest on debentures ₹19,000; loss on sale of machinery ₹9,000; decrease in trade receivables ₹14,000; decrease in inventories ₹20,000; increase in trade payables ₹19,000; income tax paid ₹5,000.
Working: operating profit before working capital changes ₹3,32,000; decrease in trade receivables add ₹14,000, decrease in inventories add ₹20,000, increase in trade payables add ₹19,000; less tax ₹5,000
Answer: ₹3,80,000
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