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AS- 3 Cash Flow Statement

A statement that shows flow of cash and cash equivalents of a particular period of time. It is a summary of receipts and payment of cash for a particular period of time. It also explains reasons for the changes in cash position of the firm.
Cash flow statement is generally prepared for one financial year (April to March).
Cash means cash in hand and cash at bank /demand deposits with banks.
Cash equivalent is a highly liquid investment whose maturity period is three months or less. It is subject to a minimal risk of a change in value.
Cash equivalent includes Marketable securities / short term investment, short term deposits in banks, cheques and drafts on hand, certificate of deposits.
Note – Until and unless, question specifies, short term investment is considered as marketable securities. Otherwise it will be taken as current asset while solving question.

Cash Flow means inflow and outflow of cash and cash equivalents.
Inflow – Any transaction that increases cash and cash equivalent of a company
Example –rent received cash revenue from operations, sale of investment etc.

Outflow – any transaction that decrease inflow and outflow of a company.
Example – repayment of loans and advances, payment to creditors, operating expenses paid etc.

AS -3 requires preparation of cash flow statement under three heads:

Cash Flow from Operating Activity
It includes cash flows from the principal revenue generation activities of an organisation.

Cash flow from investing Activity
It includes cash flows from sale and purchase of noncurrent assets, investments (which are not included in cash equivalent) and earning generated on those investments.

Cash flow from financing Activity
It includes cash flow resulting out of change in shareholders’ fund and noncurrent liability of an organisation (raising and repaying finance of an organisation).Note – We will see the examples of all three activities in CFS format.*

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AS- 3 Cash Flow Statement notes