sivaram (Asst Mgr-Taxation) (6918 Points)
08 February 2011Dear Students
Kindly explain in detail why we are adding and deducting in both in cash Flow and Fund Flow so that a layman like me can understand
Thanks in advance
Naveen
(B.COM, CA Final)
(468 Points)
Replied 08 February 2011
Ramanan Krishnamoorthy
(Chartered Accountant)
(158 Points)
Replied 14 February 2011
For Cash Flow Statement
Since sales include both cash sales and credit sales. We have to know how much cash comes in or goes out during the year by preparing cash flow statement
I Will explain through example 1
assume you started a new business from 1-4-2009 with the cash of rs.200000/-
you made cash purchase (Rs.50000) and sold goods on credit. Assume you sold goods on credit of worth rs.100000/-
as on 31/03/2010
Pft will be (100000-50000) 50000
inceasig in debtors (100000) cash outflow
outflow from operations (50000)
op cash 200000
closing cash 150000
Opeing cash 200000- (50000) outflow = Rs.150000/- closing cash
Verify : cash 200000- purchases 50000 = Rs.150000 closing cash
op drs is nil clng drs 100000 increasing in sundry debtors of Rs.100000/- it means to the extent of Rs.1 lacs our fund has been blocked outside (with drs)
Let us extent the example
Assume you collected Rs.45000/- during the year 09-10. So as on 31/03/2010 drs will Rs.55000/-
then increasing drs will be Rs.55000/- because you collected to the extent of Rs.45000/- and amt blocked to the extent of Rs.55000/-
Profit (100000-50000) = 50000
Less: Inc in Drs (55000)
----------------
cash outflow (5000)
Op cash 2000000
closing cash 195000
Verification Op cash 200000-cashPurchases(50000)+cash collected(45000)=195000
Example 2
For existing business
Op drs 100000 closing drs 45000 you collected rs.55000/- sale during year is nil
Decreasing in sundry drs Rs.55000/-. it represents you collected to the extent of rs.55000/- cash comes in
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