Statement of Cash Flow

&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad1" id&equals;"quads-ad1" style&equals;"float&colon;left&semi;margin&colon;0px 0px 0px 0&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;<p>Conventional financial statements i&period;e&period; income statement and balance sheet do not give true picture of the cash flows of the firm&period; Because income statement incorporates many non-cash expenditures and revenues for the sake of ascertaining profitability&period; Similarly balance sheet tells us the overall financial position with respect to firms’ assets and liabilities and includes monetary and non-monetary items&period; In reality the business is a matter of earning cash therefore firms receive and spend cash on daily basis&period; The shareholder must be in loop regarding the cash receipts and disbursements of the firm&period; Cash flow statement summarizes the firms’ cash flows over a given period of time under a universally accepted and understood format&period;<&sol;p>&NewLine;<p>The preparation of cash flow statement is a matter of ascertaining cash inflows and outflows with in a given period mainly one year&period; It summarizes the cash inflows and outflows&period; Cash inflows means the sources of cash or cash receipts and cash outflow means the uses of cash or cash payments&period; For example&comma; if a firm’s accounts payable increased by &dollar;1000 during a period&comma; the change would be an inflow of cash&period; Few points need to be understood for the good insight of cash flow statement&period;<&sol;p>&NewLine;<p>• The cash invested in assets is treated as funds tied up in those assets therefore any decrease in assets is referred to as cash inflow&period; On the contrary enhancement in assets or cash balances indicates cash outflows because additional cash has been strapped in assets and cash balances&period; Likewise decrease in cash balance reflects cash inflow&period;<&sol;p>&NewLine;<p>• Just like amortization and depletion&comma; depreciation is also a non-cash charge that is deducted from revenue to ascertain the profitability for a period&period; Depreciation is required to be added to the profit after tax to assess the cash flows from operations in cash flow statement&period;<&sol;p>&NewLine;<p>• To prevent from double counting of depreciation in cash flow statement it is imperative to include gross rather than net changes in fixed assets while preparing cash flow statement&period;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad2" id&equals;"quads-ad2" style&equals;"float&colon;none&semi;margin&colon;0px 0 0px 0&semi;text-align&colon;center&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;<&excl;-- WP QUADS Content Ad Plugin v&period; 2&period;0&period;95 -->&NewLine;<div class&equals;"quads-location quads-ad3" id&equals;"quads-ad3" style&equals;"float&colon;none&semi;margin&colon;0px&semi;">&NewLine;&NewLine;<&sol;div>&NewLine;&NewLine;