A Cash Flow Statement analyzes the effect of various activities in the company on cash and, that is, it shows the inflow and outflow of cash and cash equivalents. A Fund Flow Statement analyzes the financial position of a company by the inflow and outflow of funds. Both the statements are financialRead more
A Cash Flow Statement analyzes the effect of various activities in the company on cash and, that is, it shows the inflow and outflow of cash and cash equivalents.
A Fund Flow Statement analyzes the financial position of a company by the inflow and outflow of funds.
Both the statements are financial statements and are used to analyze the financial performance of the company of two different reporting periods. Both the statements record the inflow and outflow of cash or funds, as the case may be.
The primary objective of preparing a Cash Flow Statement is to gain an understanding of the changes in the net working capital of the company and to classify the activities in the company under three different heads which helps in better analysis of Financial Statements for management, outsiders, and investors.
The primary objective of preparing a Fund Flow Statement is to track the movements of funds in the company, as the extent of use of long-term and short-term borrowings, frequency of their procurement, its application, etc.
The components of the Cash Flow Statement are:
Cash Flow from Operating Activities- activities concerning the regular business operations and working capital are classified under this head.
Cash Flow from Investing Activities- investment in long-term assets or sale of such assets are considered under this head.
Cash Flow from Financing Activities- borrowings that a company makes to fund its operations, their interest payment, and repayment are covered under this head.
The components of the Fund Flow Statement are:
Sources of Funds:
Owners
Outsiders
Application of Funds:
Funds deployed in Fixed Assets
Funds deployed in Current Assets
A sample format of the Cash Flow Statement will be:
Particulars
Amount
Cash Flow from Operating Activities
XXX
Cash Flow from Investing Activities
XXX
Cash Flow from Financing Activities
XXX
Net Increase (Decrease) in Cash and Cash Equivalents
XXX
Cash and Cash Equivalents at the beginning
XXX
Cash and Cash Equivalents at the end
XXX
A sample format of the Fund Flow Statement will be:
Particulars
Amount
Sources of Funds
XXX
Funds from Operations
XXX
Sale of Fixed Assets
XXX
Issue of Shares
XXX
Issue of Debentures
XXX
Long Term Borrowings
XXX
Total (A)
XXX
Application of Funds
XXX
Loss from Operations
XXX
Payment of Tax
XXX
Repayment of Loan
XXX
Redemption of Debentures
XXX
Redemption of Preference Shares
XXX
Total (B)
XXX
Net Increase (Decrease) in Working Capital
XXX
To conclude the difference between Fund Flow and Cash Flow Statement will be:
Cash Flow Statement
Fund Flow Statement
Record of inflow and outflow of cash.
Record of sources and application of funds.
Prepared to analyze cash used in various activities.
Prepared to track the movement of funds and their applications.
In accounting, sales returns are the goods returned by the customer to the seller. This can be due to goods delivered is damaged or defective. A return can also be due to late delivery, or the wrong items being sent to the buyer. Sales return is a subsidiary book in which all the details are recordeRead more
In accounting, sales returns are the goods returned by the customer to the seller. This can be due to goods delivered is damaged or defective. A return can also be due to late delivery, or the wrong items being sent to the buyer.
Sales return is a subsidiary book in which all the details are recorded for the goods returned which were sold on credit. It is also known as return inwards.
Accounting for Sales Return
Whenever there is a sale return, the seller will debit the sales return account and credit the debtor’s account. The total amount of sales returns is deducted from the gross sales for the period giving the figure for net sales. Debtor’s account is credited because the amount receivable from debtors will reduce.
The sales return is a contra account to the sales.
Format of sales return book:
In the above format, a credit note is a statement prepared by the seller and sent to the buyer. In this statement, all the details are mentioned in respect of the goods sent by the buyer and are an indication that the buyer’s account is credited in respect of the goods received.
For example, Mr. A sold goods to Mr. B costing Rs 50,000 on 1 December. On 5 December, goods amounting to Rs 15,000 were found defective and were returned immediately to Mr. A.
When a loan is taken from a person by a business, there is an asset and liability being created. Cash is being brought into the business which increases the asset whereas the financial obligation of the company rises when a loan is taken and hence a liability increases. For example, Mark Ltd. has taRead more
When a loan is taken from a person by a business, there is an asset and liability being created. Cash is being brought into the business which increases the asset whereas the financial obligation of the company rises when a loan is taken and hence a liability increases.
For example, Mark Ltd. has taken a loan from John for $5,000. Therefore the journal entry can be shown as:
According to the modern rules of accounting, increase in assets is Debit and increase in liability is credit. The company may have taken the loan to finance its business or for some emergency. When it is time for the business to pay off the loan, they can either pay it off completely or in instalments. They must pay off the principal amount along with interest.
Now for our above example, if Mark Ltd paid off the entire loan after one year at 10% interest, then the journal entry would be:
Here, the interest on loan account is debited since an increase in expense is debited. Loan account will be debited because the obligation is now reduced and hence liability decreases. Finally, we credit cash since cash is leaving the business which implies a decrease in assets.
If the entire loan is not paid off in that year, then the balance of the loan amount will be shown in the balance sheet under the head liabilities.
A cash flow statement presents the changes in the cash and cash equivalents of a business. It classifies the cash flow items into either operating, investing, or financing activities. Unlike a balance sheet that provides information about the company on a particular date, a cash flow statement proviRead more
A cash flow statement presents the changes in the cash and cash equivalents of a business. It classifies the cash flow items into either operating, investing, or financing activities. Unlike a balance sheet that provides information about the company on a particular date, a cash flow statement provides information about the flow of cash over a period of time.
OBJECTIVE
Information obtained through cash flow statements is aimed to assess the ability of a business to generate cash and at the same time, maintain liquidity. Therefore, important economic decisions can be made by evaluating these cash flow statements.
Cash Flow statements are categorized into
Operating Activities: These activities refer to the main activities of the business during an accounting period. They involve revenue-generating activities. As per the indirect method, profit before tax is taken as the starting point and all non-cash expenses are added while non-cash incomes are deducted. Whereas in direct method, cash receipts and cash expenses are added and subtracted respectively. Eg: sale of goods.
Investing Activities: These activities involve the sale and purchase of non-current assets and investments. Eg: cash payment for machinery.
Financing Activities: These activities result in a change in capital or borrowings. Eg: cash proceeds from the issue of equity shares.
Importance of Cash Flow
A cash flow statement gives us knowledge about the liquidity and solvency of the company. These are necessary for the survival and expansion of the company. It also helps in predicting future cash flows by using information from previous cash flows. It also helps in comparison between companies which shows the actual cash profits.
Brief Introduction The stock of finished goods left unsold at the end of the year is known as closing stock. As closing stock represent an asset i.e. the unsold finished goods, it has a debit balance. Closing stock appears on the credit side of the trading account and on the asset side of the balanRead more
Brief Introduction
The stock of finished goods left unsold at the end of the year is known as closing stock. As closing stock represent an asset i.e. the unsold finished goods, it has a debit balance.
Closing stock appears on the credit side of the trading account and on the asset side of the balance sheet. But, if closing stock is adjusted against purchase i.e. deducted from purchase account balance, then it doesn’t appear in the trading account.
It is always shown on the asset of the balance irrespective of its treatment as discussed above because it is an asset.
Though no ledger is maintained for closing stock in financial accounts of a business, the journal entry for the closing stock is passed and is as below:
Closing stock A/c Dr Amt
To Trading A/c Amt
(When the closing stock appears in trading a/c)
OR
Closing stock A/c Dr Amt
To Purchase A/c Amt
(When closing stock is adjusted against purchase A/c and not shown in trading a/c)
Generally, the closing stock is shown separately in the trial balance because it is already part of the purchase account balance.
Closing stock is ascertained at the end of the financial year and it has great importance as it directly affects the gross profit or loss of a business. Closing stock at end of a year becomes the opening stock of the next financial year.
Numerical Example
ABC trading reported the following particulars at the end of the financial year 20X2-20X3:
We will draw the trading and P/L account and balance sheet of ABC Trading using the above information.
As the closing stock is not given, we will calculate the closing stock as a balancing figure.
Shareholders are the entities that hold some amount or number of shares of a company. As we know that ownership of a company is divided into its shares, a shareholder is actually a part-owner of a company. By entity, it means a shareholder may be: An individual Any other company Any other incorporatRead more
Shareholders are the entities that hold some amount or number of shares of a company. As we know that ownership of a company is divided into its shares, a shareholder is actually a part-owner of a company.
By entity, it means a shareholder may be:
An individual
Any other company
Any other incorporated entity
Cooperative society
BOI( Body of Individuals)
AOP(Association of Persons)
Artificial Juridical Person
The rights of shareholders depend on the type of shareholder one is.
Types of shareholders
1. Equity Shareholders: By the term ‘shareholders’ we usually mean equity shareholders. They are permanent in nature i.e. they are not repaid the money they have invested into the company until the company is liquidated or wound up. Equity shareholders have the following rights:
Right to have a share in profits made by the company. The profit made by a company, when distributed to its equity shareholders is known as a dividend.
Right to vote on all resolutions to be passed in the Annual General Meeting of a company.
Right to get repaid in event of winding up of the company. However, they are paid after meeting the obligations of outsiders and of preference shareholders.
Right to transfer ownership of the shares. A shareholder may sell its shares to some willing buyer and cease to be a shareholder of a company.
2. Preference Shareholders: They are shareholders who are given preference regarding:
Dividend
Repayment at time of winding up
Unlike equity shareholders, they are not of permanent nature. Preference shares are redeemable i.e. they are to be repaid after a period which cannot be more than 20 years from the date of allotment of such shares (as the Companies Act, 2013). Also, a company cannot issue irredeemable preference shares. The rights of preference shareholders are as follows:-
By preference as to dividend, it means preference shareholders have the right to receive a fixed dividend as a certain percentage on the nominal value of the share and that too before equity shareholders are paid.
Right to get repaid at the date of redemption.
If the company get liquidated before redemption of the preference shareholder, then they have the right to get repaid before equity shareholders.
3. Differential Voting Rights Shareholders: These shareholders hold equity shares but with differential, right as to voting i.e. they may either have less voting rights or more voting right as compared to ordinary equity shares. Generally, DVR shares carry less voting power.
For example, a DVR shareholder gets 1 vote for 10 shares whereas an ordinary equity shareholder gets 10 votes for 10 shares i.e. one vote for every share. DVR shares issued to raise not only permanent capital but also prevent dilution of voting rights.
The rest of the right remains the same as the equity shareholders.
The principal book of accounting is “Ledger”. It records all types of transactions relating to a real, personal or nominal account. It records transactions relating to an income, expense, asset or a liability. A ledger classifies a transaction which is recorded in journal to their respective accountRead more
The principal book of accounting is “Ledger”. It records all types of transactions relating to a real, personal or nominal account. It records transactions relating to an income, expense, asset or a liability.
A ledger classifies a transaction which is recorded in journal to their respective accounts, and in the end calculates a closing balance for the same account. The closing balance is further transferred to the financial statements, and hence ledger is called the books of final entry as it gives true and fair picture of an account.
Template of Ledger:
For example, ABC Ltd purchased machinery for cash amounting to Rs 1,00,000 on 1st January. This transaction will include a machinery account and a cash account. The amount will be recorded in the respective accounts for that period.
The reason being ledger is called a principal book of accounting is, it helps a business in preparation of trial balance and financial statements.
What is the difference between cash flow statement and funds flow statement?
A Cash Flow Statement analyzes the effect of various activities in the company on cash and, that is, it shows the inflow and outflow of cash and cash equivalents. A Fund Flow Statement analyzes the financial position of a company by the inflow and outflow of funds. Both the statements are financialRead more
A Cash Flow Statement analyzes the effect of various activities in the company on cash and, that is, it shows the inflow and outflow of cash and cash equivalents.
A Fund Flow Statement analyzes the financial position of a company by the inflow and outflow of funds.
Both the statements are financial statements and are used to analyze the financial performance of the company of two different reporting periods. Both the statements record the inflow and outflow of cash or funds, as the case may be.
The primary objective of preparing a Cash Flow Statement is to gain an understanding of the changes in the net working capital of the company and to classify the activities in the company under three different heads which helps in better analysis of Financial Statements for management, outsiders, and investors.
The primary objective of preparing a Fund Flow Statement is to track the movements of funds in the company, as the extent of use of long-term and short-term borrowings, frequency of their procurement, its application, etc.
The components of the Cash Flow Statement are:
The components of the Fund Flow Statement are:
Sources of Funds:
Application of Funds:
A sample format of the Cash Flow Statement will be:
A sample format of the Fund Flow Statement will be:
To conclude the difference between Fund Flow and Cash Flow Statement will be:
· Sources of Funds
· Application of Funds
See lessWhat is sales return book format?
In accounting, sales returns are the goods returned by the customer to the seller. This can be due to goods delivered is damaged or defective. A return can also be due to late delivery, or the wrong items being sent to the buyer. Sales return is a subsidiary book in which all the details are recordeRead more
In accounting, sales returns are the goods returned by the customer to the seller. This can be due to goods delivered is damaged or defective. A return can also be due to late delivery, or the wrong items being sent to the buyer.
Sales return is a subsidiary book in which all the details are recorded for the goods returned which were sold on credit. It is also known as return inwards.
Accounting for Sales Return
Whenever there is a sale return, the seller will debit the sales return account and credit the debtor’s account. The total amount of sales returns is deducted from the gross sales for the period giving the figure for net sales. Debtor’s account is credited because the amount receivable from debtors will reduce.
The sales return is a contra account to the sales.
Format of sales return book:
In the above format, a credit note is a statement prepared by the seller and sent to the buyer. In this statement, all the details are mentioned in respect of the goods sent by the buyer and are an indication that the buyer’s account is credited in respect of the goods received.
For example, Mr. A sold goods to Mr. B costing Rs 50,000 on 1 December. On 5 December, goods amounting to Rs 15,000 were found defective and were returned immediately to Mr. A.
Mr. A will account for this in the following way:
See lessWhat is the journal entry for loan taken from a person?
When a loan is taken from a person by a business, there is an asset and liability being created. Cash is being brought into the business which increases the asset whereas the financial obligation of the company rises when a loan is taken and hence a liability increases. For example, Mark Ltd. has taRead more
When a loan is taken from a person by a business, there is an asset and liability being created. Cash is being brought into the business which increases the asset whereas the financial obligation of the company rises when a loan is taken and hence a liability increases.
For example, Mark Ltd. has taken a loan from John for $5,000. Therefore the journal entry can be shown as:
According to the modern rules of accounting, increase in assets is Debit and increase in liability is credit. The company may have taken the loan to finance its business or for some emergency. When it is time for the business to pay off the loan, they can either pay it off completely or in instalments. They must pay off the principal amount along with interest.
Now for our above example, if Mark Ltd paid off the entire loan after one year at 10% interest, then the journal entry would be:
Here, the interest on loan account is debited since an increase in expense is debited. Loan account will be debited because the obligation is now reduced and hence liability decreases. Finally, we credit cash since cash is leaving the business which implies a decrease in assets.
If the entire loan is not paid off in that year, then the balance of the loan amount will be shown in the balance sheet under the head liabilities.
See lessWhy is cash flow statement prepared?
A cash flow statement presents the changes in the cash and cash equivalents of a business. It classifies the cash flow items into either operating, investing, or financing activities. Unlike a balance sheet that provides information about the company on a particular date, a cash flow statement proviRead more
A cash flow statement presents the changes in the cash and cash equivalents of a business. It classifies the cash flow items into either operating, investing, or financing activities. Unlike a balance sheet that provides information about the company on a particular date, a cash flow statement provides information about the flow of cash over a period of time.
OBJECTIVE
Information obtained through cash flow statements is aimed to assess the ability of a business to generate cash and at the same time, maintain liquidity. Therefore, important economic decisions can be made by evaluating these cash flow statements.
Cash Flow statements are categorized into
Importance of Cash Flow
A cash flow statement gives us knowledge about the liquidity and solvency of the company. These are necessary for the survival and expansion of the company. It also helps in predicting future cash flows by using information from previous cash flows. It also helps in comparison between companies which shows the actual cash profits.
See lessWhat is the journal entry for stock left unsold at the end of the year?
Brief Introduction The stock of finished goods left unsold at the end of the year is known as closing stock. As closing stock represent an asset i.e. the unsold finished goods, it has a debit balance. Closing stock appears on the credit side of the trading account and on the asset side of the balanRead more
Brief Introduction
The stock of finished goods left unsold at the end of the year is known as closing stock. As closing stock represent an asset i.e. the unsold finished goods, it has a debit balance.
Closing stock appears on the credit side of the trading account and on the asset side of the balance sheet. But, if closing stock is adjusted against purchase i.e. deducted from purchase account balance, then it doesn’t appear in the trading account.
It is always shown on the asset of the balance irrespective of its treatment as discussed above because it is an asset.
Though no ledger is maintained for closing stock in financial accounts of a business, the journal entry for the closing stock is passed and is as below:
Closing stock A/c Dr Amt
To Trading A/c Amt
(When the closing stock appears in trading a/c)
OR
Closing stock A/c Dr Amt
To Purchase A/c Amt
(When closing stock is adjusted against purchase A/c and not shown in trading a/c)
Generally, the closing stock is shown separately in the trial balance because it is already part of the purchase account balance.
Closing stock is ascertained at the end of the financial year and it has great importance as it directly affects the gross profit or loss of a business. Closing stock at end of a year becomes the opening stock of the next financial year.
Numerical Example
ABC trading reported the following particulars at the end of the financial year 20X2-20X3:
We will draw the trading and P/L account and balance sheet of ABC Trading using the above information.
As the closing stock is not given, we will calculate the closing stock as a balancing figure.
It can be also calculated using this formula:
Closing stock = Opening stock + Purchase + Gross Profit – Sales
See lessWho are shareholders in accounting?
Shareholders are the entities that hold some amount or number of shares of a company. As we know that ownership of a company is divided into its shares, a shareholder is actually a part-owner of a company. By entity, it means a shareholder may be: An individual Any other company Any other incorporatRead more
Shareholders are the entities that hold some amount or number of shares of a company. As we know that ownership of a company is divided into its shares, a shareholder is actually a part-owner of a company.
By entity, it means a shareholder may be:
The rights of shareholders depend on the type of shareholder one is.
Types of shareholders
1. Equity Shareholders: By the term ‘shareholders’ we usually mean equity shareholders. They are permanent in nature i.e. they are not repaid the money they have invested into the company until the company is liquidated or wound up. Equity shareholders have the following rights:
2. Preference Shareholders: They are shareholders who are given preference regarding:
Unlike equity shareholders, they are not of permanent nature. Preference shares are redeemable i.e. they are to be repaid after a period which cannot be more than 20 years from the date of allotment of such shares (as the Companies Act, 2013). Also, a company cannot issue irredeemable preference shares. The rights of preference shareholders are as follows:-
3. Differential Voting Rights Shareholders: These shareholders hold equity shares but with differential, right as to voting i.e. they may either have less voting rights or more voting right as compared to ordinary equity shares. Generally, DVR shares carry less voting power.
For example, a DVR shareholder gets 1 vote for 10 shares whereas an ordinary equity shareholder gets 10 votes for 10 shares i.e. one vote for every share. DVR shares issued to raise not only permanent capital but also prevent dilution of voting rights.
The rest of the right remains the same as the equity shareholders.
See lessPrincipal books of accounting is known as?
The principal book of accounting is “Ledger”. It records all types of transactions relating to a real, personal or nominal account. It records transactions relating to an income, expense, asset or a liability. A ledger classifies a transaction which is recorded in journal to their respective accountRead more
The principal book of accounting is “Ledger”. It records all types of transactions relating to a real, personal or nominal account. It records transactions relating to an income, expense, asset or a liability.
A ledger classifies a transaction which is recorded in journal to their respective accounts, and in the end calculates a closing balance for the same account. The closing balance is further transferred to the financial statements, and hence ledger is called the books of final entry as it gives true and fair picture of an account.
Template of Ledger:
For example, ABC Ltd purchased machinery for cash amounting to Rs 1,00,000 on 1st January. This transaction will include a machinery account and a cash account. The amount will be recorded in the respective accounts for that period.
The reason being ledger is called a principal book of accounting is, it helps a business in preparation of trial balance and financial statements.
See less