StudyTunnel Logo
StudyTunnel
by BhamuIntelli Systems LLP

Home

School

CBSE

Class 12 Commerce

Accountancy

Cash Flow Statement

Cash Flow Statement

Action PlanNotesQuestionsMock-Test
Study Action Plan (Sorted by Difficulty)
Accounting Standards for Cash Flow Statements
Accuracy: 0%
Total Attempted0
Total Correct0
Total Incorrect0
Difficulty Level:
High
Cash Flow Statement Preparation
Accuracy: 0%
Total Attempted0
Total Correct0
Total Incorrect0
Difficulty Level:
High
Classification of Cash Flows
Accuracy: 0%
Total Attempted0
Total Correct0
Total Incorrect0
Difficulty Level:
High
Impact of Working Capital Changes
Accuracy: 0%
Total Attempted0
Total Correct0
Total Incorrect0
Difficulty Level:
High
Indirect Method of Cash Flow Calculation
Accuracy: 0%
Total Attempted0
Total Correct0
Total Incorrect0
Difficulty Level:
High
Non-cash Transactions in Cash Flow Statements
Accuracy: 0%
Total Attempted0
Total Correct0
Total Incorrect0
Difficulty Level:
High
Treatment of Peculiar Items in Cash Flow
Accuracy: 0%
Total Attempted0
Total Correct0
Total Incorrect0
Difficulty Level:
High

Learning Objectives

Top

Learning Objectives

  • State the purpose and preparation of the cash flow statement.
  • Distinguish between operating activities, investing activities, and financing activities.
  • Prepare the statement of cash flows using the direct method.
  • Prepare the cash flow statement using the indirect method.

Practice, Analyze & Improve

Dont just read—test your knowledge! Unlock the Student Workspace to take chapter tests and get instant performance insights.

Deep Analytics

Peer Comparison

Track Progress

Claim Free Account100% Free • No credit card required

Revision Notes & Summary

Top

Cash Flow Statement Notes

1. Objectives of Cash Flow Statement

  • Shows inflow and outflow of cash and cash equivalents from various activities of a company during a specific period.
  • Provides useful information about cash flows under various heads:
    • Operating activities
    • Investing activities
    • Financing activities
  • Helps assess the ability of the enterprise to generate cash and cash equivalents.

2. Benefits of Cash Flow Statement

  • Enables evaluation of changes in net assets and financial structure (liquidity and solvency).
  • Assists in assessing the ability to generate cash and develop models for future cash flows.
  • Enhances comparability of operating performance reporting across enterprises.
  • Aids in balancing cash inflows and outflows in response to changing conditions.

3. Classification of Activities

Operating Activities

  • Cash revenue from operations
  • Payment of employee benefits expenses
  • Cash paid to suppliers
  • Payment of operating expenses

Investing Activities

  • Purchase of property, plant, and equipment
  • Proceeds from sale of non-current investments
  • Cash receipt from interest and dividends

Financing Activities

  • Proceeds from issuance of equity shares
  • Payment of dividends
  • Redemption of preference shares

4. Cash Flow Statement Structure

Main HeadsAmount
Cash flows from operating activitiesXXX
Cash flows from investing activitiesXXX
Cash flows from financing activitiesXXX
Net increase (decrease) in cash and cash equivalentsXXX
Cash and cash equivalents at the beginningXXX
Cash and cash equivalents at the endXXXX

5. Important Terms

  • Cash: Liquid assets available for use.
  • Cash Equivalents: Short-term investments that are easily convertible to cash.
  • Cash Inflows: Money received by the company.
  • Cash Outflows: Money spent by the company.
  • Non-cash item: Transactions that do not involve cash.

6. Example Activities Classification

ActivityClassification
Purchase of machineryInvesting Activities
Proceeds from issue of equity share capitalFinancing Activities
Cash revenue from operationsOperating Activities
Proceeds from long-term borrowingsFinancing Activities
Cash paid to supplierOperating Activities
Interest paid on long-term borrowingsFinancing Activities

7. Common Questions

  1. What is a Cash flow statement?
  2. How are the various activities classified while preparing cash flow statement?
  3. State the objectives of cash flow statement.
  4. Describe the procedure to prepare Cash Flow Statement.
  5. Explain the major Cash Inflows and outflows from investing and financing activities.
Do you belong in the Top 10%?

Our analytics show that most students struggle with specific concepts in Cash Flow Statement. Take a free diagnostic test to generate your personal Learning DNA profile.

Practice Test – MCQs, True/False

Top

Multiple Choice Questions

A.

Payment for the purchase of a building

B.

Payment of salaries to employees

C.

Payment of dividends

D.

Purchase of long-term investments
Correct Answer: B

Solution:

Payment of salaries to employees is a cash outflow from operating activities as it is part of the primary operations of the business.

Chapter Concept:

Cash Flow Statement Preparation

A.

Purchase of machinery

B.

Proceeds from the sale of old machinery

C.

Cash receipts from the sale of goods and services

D.

Issuance of equity shares
Correct Answer: C

Solution:

Cash receipts from the sale of goods and services are considered operating activities as they are part of the primary revenue-generating activities of an enterprise.

Chapter Concept:

Classification of Cash Flows

A.

Interest received on investments

B.

Repayment of long-term loans

C.

Purchase of inventory

D.

Payment of wages
Correct Answer: B

Solution:

Financing activities involve changes in the size and composition of the equity capital and borrowings of the enterprise. Repayment of long-term loans is a financing activity.

Chapter Concept:

Classification of Cash Flows

A.

As cash flows from investing activities

B.

As cash flows from financing activities

C.

As cash flows from operating activities

D.

As non-cash transactions
Correct Answer: C

Solution:

Taxes on income are classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities.

Chapter Concept:

Accounting Standards for Cash Flow Statements

A.

Operating activities with a loss of $10,000

B.

Investing activities with a cash inflow of $50,000

C.

Financing activities with a cash inflow of $50,000

D.

Operating activities with a cash inflow of $50,000
Correct Answer: B

Solution:

The sale of equipment is classified under investing activities, and the cash inflow is the actual cash received, which is $50,000.

Chapter Concept:

Classification of Cash Flows

A.

Added to net profit

B.

Subtracted from net profit

C.

Ignored

D.

Recorded as an investing activity
Correct Answer: B

Solution:

An increase in inventories indicates that cash was used to purchase more inventory, so it is subtracted from net profit.

Chapter Concept:

Indirect Method of Cash Flow Calculation

A.

Proceeds from issuing equity shares

B.

Interest received on investments

C.

Purchase of machinery

D.

Payment of dividends
Correct Answer: A

Solution:

Proceeds from issuing equity shares are classified as a cash inflow from financing activities as per AS-3.

Chapter Concept:

Accounting Standards for Cash Flow Statements

A.

Add back depreciation expense

B.

Subtract cash receipts from customers

C.

Add cash payments for taxes

D.

Subtract dividends received
Correct Answer: A

Solution:

Under the indirect method, non-cash expenses like depreciation are added back to net profit to determine cash flows from operating activities.

Chapter Concept:

Accounting Standards for Cash Flow Statements

A.

Cash receipts from sale of goods

B.

Cash payments to acquire fixed assets

C.

Cash proceeds from issuing shares

D.

Cash payments of income taxes
Correct Answer: B

Solution:

Cash payments to acquire fixed assets are classified as cash flows from investing activities according to AS-3.

Chapter Concept:

Cash Flow Statement Preparation

A.

Added back to net profit

B.

Subtracted from net profit

C.

Ignored in the cash flow statement

D.

Recorded as a cash outflow
Correct Answer: A

Solution:

Depreciation is a non-cash expense and is added back to net profit in the cash flow statement when using the indirect method to adjust for non-cash items.

Chapter Concept:

Impact of Working Capital Changes

Experience the StudyTunnel Method

We do not just give you mock tests. We guide you through a gamified, AI-driven learning path designed to guarantee mastery.

Step 1: Practicing the Concepts

Cash Flow Statement

Step 2: Master Boss Exam
Locked • Full Phase Assessment
Step 3: Redemption Arena
Locked • AI Weakness Tracker

True or False

Correct Answer: False

Solution:

Cash flows from the sale of machinery are classified as investing activities according to AS-3.

Chapter Concept :

Classification of Cash Flows

Correct Answer: False

Solution:

The purchase of marketable securities or short-term investments that constitute cash equivalents is not considered while preparing a cash flow statement.

Chapter Concept :

Cash Flow Statement Preparation

Correct Answer: False

Solution:

Non-cash transactions are excluded from the cash flow statement as per AS-3. They should be disclosed elsewhere in the financial statements.

Chapter Concept :

Non-cash Transactions in Cash Flow Statements

Correct Answer: True

Solution:

The indirect method begins with net profit or loss before taxation and extraordinary items and adjusts for non-cash and non-operating items.

Chapter Concept :

Indirect Method of Cash Flow Calculation

Correct Answer: True

Solution:

AS-3 requires that an enterprise should prepare a cash flow statement and present it for each accounting period for which financial statements are presented.

Chapter Concept :

Accounting Standards for Cash Flow Statements

Correct Answer: True

Solution:

According to AS-3, for a non-financial enterprise, interest paid is classified as a financing activity.

Chapter Concept :

Treatment of Peculiar Items in Cash Flow

Correct Answer: False

Solution:

Under AS-3, cash flows from the sale of property, plant, and equipment are classified as investing activities, not operating activities.

Chapter Concept :

Classification of Cash Flows

Correct Answer: True

Solution:

For a financial enterprise, interest paid is considered an operating activity as per AS-3.

Chapter Concept :

Classification of Cash Flows

Correct Answer: True

Solution:

The indirect method begins with the net profit or loss before taxation and extraordinary items as per the Statement of Profit and Loss.

Chapter Concept :

Indirect Method of Cash Flow Calculation

Correct Answer: False

Solution:

In a non-financial enterprise, the receipt of dividends is classified as an investing activity as per AS-3.

Chapter Concept :

Treatment of Peculiar Items in Cash Flow

AI Learning Assistant
Top

I can help you understand Cash Flow Statement better. Ask me anything!

Summarize the main points of Cash Flow Statement.
What are the most important terms to remember here?
Explain this concept like I'm five.
Give me a quick 3-question practice quiz.
StudyTunnel Methodology

We dont just provide random mock tests. Our AI-driven, phase-wise learning system is designed to guarantee mastery from your first chapter to your final exam.

1
Master the Concepts

Start with chapter notes, formulas, and common exam mistakes. Practice with thousands of MCQs, True/False, and Descriptive questions with instant solutions.

2
Conquer Boss Exams

Once you master individual chapters, unlock Phase-wise Boss Exams. These milestone tests simulate the actual exam environment to test your retention across multiple subjects.

3
The Redemption Arena

The ultimate learning hack. Our AI tracks every mistake you make and dynamically generates custom tests targeting your weak points until you achieve 100% accuracy.