Answer to Question #134711 in Management for tiya

Question

Cash flow statement is different as it classifies financial information into three major heads which allow the stakeholders in effective decision making. Discuss the broad heads as defined under AS 3 cash flow statement. What can be the potential benefits of preparing a cash flow statement? Elaborate

Answer 1

The three broad categories of financial information present in a cash flow statement according to AS 3 are operating activities, investing activities, and financing activities. Cash flows originating from operating activities are as a result of main revenue-generating business activities such as cash received from sales and cash paid to suppliers. Cash flows from investing activities, on the other hand, are a representation of outflows made related to business investments for future income in form of investments. Finally, cash flows from financing activities are associated with all transactions related to the size of the business' capital and the debts involved. The primary benefit of a cash flow statement is that it helps businesses to deduce the correct figures of cash inflows and outflows in different business operations. Consequently, the enterprise can compare past cash budgets to present ones to determine future cash requirements.