Question

How do you calculate ''Net increase in cash" & "Cash End of the year" for cash flow statement from balance sheet and income statement?

Answer 1

Cash from operating activities can be computed by using either of the two methods:

1)Direct Method

Under Direct method, we disclose the following items straight away:

1. Collection from debtors
2. Cash sales
3. Cash purchases
4. Payment to creditors
5. Payment for expenses
6. Foreign exchange gain realized

2) Indirect Method

Under this method, we convert the Profit Before Tax and extra ordinary items into cash from operations by adjusting the following:

1. Non Cash items
2. Investing & financing items(Interest, profit/loss I sale of investments/FA, etc)
3. Working capital changes other than cash and cash equivalent

''Net increase in cash" & "Cash End of the year" for cash flow statement from balance sheet and income statement can be computed using the below Format :

(i) Cash flows from operating Activities                                                                                   

Net Profit as per Profit and Loss A/c or difference

between closing balance and opening balance of Profit

and Loss A/c

Add :    Transfer to reserve                                                                                xxx

Proposed dividend for current year                                                        xxx

Interim dividend paid during the year                                                      xxx

Provision for tax made during the current year                                        xxx

Extraordinary items, if any, debited to Profit and Loss A/c                      xxx

                                                                                                                        xxx

Less : Extraordinary Items, if any, credited to Profit                                            xxx

and Loss A/c

A. Net profit before taxation and Extra ordinary items                                         xxx

Adjustment for Non-Cash and Non-Operating Items.

B. Add :

– Depreciation                                                                                                   xxx

– Preliminary expenses                                                                                      xxx

– Discount on issue of shares and debentures written off                                    xxx

– Interest on borrowings and debentures                                                            xxx

– Loss on sale of fixed assets                                                                           xxx                  

xxx

C. Less :          

– Interest income/received                                                                                 xxx

– Dividend income received                                                                               xxx

– Rental income received                                                                                   xxx

– Profit on sale of fixed asset                                                                            xxx

xxx

D. Operating profits before working capital changes

(A + B – C)                                                                                                                                xxx

E. Decrease in current assets and increase in current liabilities                             xxx

F. Less : Increase in current assets and decrease in current liabilities                   xxx

G. Cash generated from operations (D + E – F)                                                                          xxx

H. Less : Income tax paid (Net tax refund received)                                                                     xxx

I. Net cash from operating activities                                                                                           xxx

(ii) Cash from investing accounting

Add :

– Proceeds from sale of fixed assets                                                                 xxx

– Proceeds from sale of investments                                                                 xxx

– Proceeds from sale of intangible assets                                                          xxx

– Interest and dividend received                                                                         xxx                  xxx

Less :

– Rent income                                                                                                               xxx

– Purchase of fixed assets                                                                                xxx

--Purchase of investment                                                                                   xxx

– Purchase of intangible assets like goodwill                                                      xxx                   xxx

Net cash from (or used in) investing activities                                                                             xxx

(iii) Cash flows from financing activities

Add :

--Proceeds from issue of shares and debentures                                                xxx

--Proceeds from other long term borrowings                                                       xxx

xxx

Less :

--Final dividend fund                                                                                          xxx

--Interim dividend fund                                                                                       xxx

--Interest on debentures and loans paid                                                              xxx

--Repayment of loans                                                                                        xxx

--Redemption of debenture preference shares                                                     xxx                   xxx

Net cash from (or used in) financing activities                                                                             xxx

(iv) Net increase/Decrease in cash and cash equivalent (i + ii + iii)                                            xxx

(v) Add : cash and cash equivalents in the beginning of the year

– cash in hand                                                                                                   xxx

– cash at bank overdraft                                                                                                xxx

– short term deposit                                                                                          xxx

– marketable securities                                                                                      xxx                  xxx

(vi) Closing cash and cash equivalents in the end of the year                                                  xxx