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Breaking down the Cash flow statement



Cash Flows


The reporting of the cash flows during the period in the cash flow statement is classified into following categories:-

  • Operating activities
  • Investing activities
  • Financing activities


Categorization made based on the activity provides information that allows users to evaluate the impact of those activities on the financial position of the entity and the amount of its cash and cash equivalents. It may also be helpful to assess the relationships among those activities.

When an entity enters into a single transaction, it may include a mix of cash flows that are categorized differently based on their characteristics. For example, installment for an acquisition of a fixed asset on hire purchase basis includes both the component of interest and loan, the interest element falls under financing activities and the loan element fall under investing activities.

Cash flows from Operating activities
In simple term Cash flows from operating activities means the revenue-producing activities of the enterprise. they generally include the transactions and other events that enter into the determination of net profit or loss. Following items fall under the category cash flows from operating activities are:

  • Cash inflows from the sale of goods and the rendering of services;
  • Cash outflows to suppliers for goods and services;
  • Cash inflows  from royalties, fees, commissions and other revenue;
  • Outflows to and on behalf of employees in terms of cash;
  • Inflows and outflows in terms of cash of an insurance company for premiums and claims, annuities and other policy benefits;
  • Income taxes payments and refunds in terms of cash unless they can be specifically identified with financing and investing activities; and
  • Inflows and outflows in terms of cash relating to futures contracts, forward contracts, option contracts and swap contracts when the contracts are held for trading purposes.


Sometimes the entity may hold securities and loans for the purpose of trading. In such case, cash flows arising from the purchase and sale of trading securities are distinguished as operating activities. Likewise, advances and loans made by financial institutions are generally classified as operating activities. They belong to the primary revenue-producing activity of that enterprise.

Cash flows from Investing Activities

All the purchase and disposal of long-term assets and investments other than cash equivalents are investing activities. Cash flows arising from investing activities should be disclosed separately. It is because the cash flows represent the extent to which capital expenditures have been made for resources that generate future income and cash flows.

Examples of cash flows arising from investing activities are:

  • Cash outflows to acquire fixed assets both tangible and intangible. It also includes Outflows relating to the capitalized research and development costs and self-constructed fixed assets;
  • Cash inflows from disposal of fixed assets both tangible and intangible;
  • Outflows incurred for the purchase of scrips (shares, warrants or debt instruments)  of the other entity and interests in joint ventures (other than payments for those instruments considered to be cash equivalents and those held for the purpose of trading);
  • Inflows from disposal of scrips (shares, warrants or debt instruments)  of the other entity and interests in joint ventures (other than receipts from those instruments considered to be cash equivalents and those held for the purpose of trading);
  • Cash advances and loans made to third parties (other than advances and loans made by a financial institution);
  • Inflows from the repayment of loans and advances made to third parties (other than advances and loans of a financial institution);
  • Outflows for futures contracts, forward contracts, option and swap except when the contracts are held for the purpose of trading, or the payments are categorized as financing activities; and
  • Cash inflows from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for the purpose of trading, or the receipts are classified as financing activities.


Cash flows from Financing Activities

The activities that have the consequence of a change in size and composition of owner’s capital and borrowing of the entity is known as financing activities. Cash flows arising from financing activities should be disclosed separately because it is useful in estimating claims on future cash flows by providers of funds (both capital and borrowings) to the entity.

Examples of cash flows arising from financing activities are:

  • Proceeds from issuing shares or other similar instruments;
  • Proceeds from issuing debentures, loans, notes, bonds and other short or long-term borrowings; and
  • Cash repayments of amounts borrowed.
Cash flow statement format

Particulars                                                                                                   Amount

Cash flow from Operating activities  (a)                                                         xxx

Cash flows from Investing activites   (b)                                                        xxx

Cash flows from Financing activities (c)                                                        xxx

Net increase or decrease in cash and cash equivalent (a+b+c)                       xxx

Cash and Cash equivalent at the beginning of the year                                     xxx

Cash and Cash equivalent at the end of the year                                                xxx




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