Net cash inflow and cash outflow for a particular period or for a financial year can be known from the cash flow statement.
Closing cash balance is determined to add opening cash balance to net cash inflow.
How to Fix Missing Figures in Cash Flow Statement
The three parts – contain with which cash flow statement is prepared are;
- Cash flow from operating activities,
- Cash flow from investing activities, and
- Cash flow from financing activities.
The techniques of ascertaining missing figures of three parts of cash flow are discussed below;
- Cash flow from operating activities: Cash flow from operating activities means inflow and outflow of cash through business activities. The inflow of cash mainly depends on sales and outflow of cash depends on expenses of business.
- Cash collection: Cash receipts or cash collection are related to cash flow from operating activities.Since cash collection is not directly mentioned in the problem it is ascertained through adjustment of various accounts.In this case, cash collection is determined to add opening receivables with net sales of the year and to subtract closing receivables there from. Besides, other incomes, if any are also added to it.For example, the sale of scraps, interest on investment etc.
- Cash payment: In this case total of various expenditure other than depreciation expense is added to the cost of goods sold to determine the total amount of cash payment.
- Increase-decrease of current assets and current liabilities: In this case, the difference between current assets and current liabilities of the current year and past year is accounted for.Adjusting the above mentioned three steps cash inflow or cash outflow from operating activities is determined.
- Cash flow from investing activities: Cash inflow or cash outflow for a particular period is determined from inflow and outflow of fixed assets of a business concern. In this case generally, cash outflow is marked.
- Cash flow from financing activities: Financing is made for carrying out overall activities of a business.The amount of inflow of cash from financing for a particular period or year is determined.Cash inflow or cash outflow is determined to take into consideration sale of new shares in the market, payment of dividend, taking a long-term loan, the redemption of bonds etc.
The net result of cash inflow and cash outflow for a particular period of a business can be known from the above-mentioned three steps.
Closing balance of cash is determined to add opening cash balance to net cash flow.
If the determined closing cash balance equals with closing cash balance as shown in the balance sheets it is assumed that cash flow statement is correct.