Please briefly explain why you feel this question should be reported.

Please briefly explain why you feel this answer should be reported.

Please briefly explain why you feel this user should be reported.

Sign InSign Up

AccountingQA

AccountingQA Logo AccountingQA Logo

AccountingQA Navigation

  • Home
  • Ask Questions
  • Write Answers
  • Explore
  • FAQs
Search
Ask A Question

Mobile menu

Close
Ask a Question
  • Home
  • Questions
    • Most Visited
    • Most Active
    • Trending
    • Recent
  • Follow
    • Categories
    • Users
    • Tags
  • Write an Answer
  • Badges & Points
  • Request New Category
  • Send a Suggestion
  • Search Your Accounting Question..

Aadil
AadilCurious
In: 1. Financial Accounting > Financial Statements

What is the treatment of general reserve in cash flow statement?

What is the treatment of general reserve in cash flow statement?
  • 1 1 Answer
  • 0 Followers
  • 0
Share
  • Facebook

    You must login to add an answer.


    Forgot Password?

    Need An Account, Sign Up Here

    1 Answer

    • Voted
    • Recent
    1. Pooja_Parikh Aspiring Chartered Accountant
      2021-12-21T18:10:07+00:00Added an answer on December 21, 2021 at 6:10 pm
      This answer was edited.

      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. The cash flow statement provides information about the flow of cash over a period of time.

      General reserve is a reserve created by taking a portion of the profits for future requirements.

      TREATMENT OF GENERAL RESERVE

      As per the indirect method, Since there is no actual flow of cash, any addition to reserves is added back to net profit for calculation of net profit before tax and extraordinary items. This net profit before tax will appear under cash flow from operating activities. If there is a reduction in reserve, then they are subtracted from net profit.

      As per the Direct method, an increase or decrease in general reserve will not affect the cash flow statement since non-cash items are not recorded. Only cash receipts and payments that come under operating activities are recorded. So, net profit is not shown in the direct method and hence neither is general reserve.

      General reserve does not fall under the head investing activities as investing activities involve the acquisition or disposal of long-term assets or investments. They do not fit in financing activities either as financing activities relate to change in capital or borrowings of the company.

      EXAMPLE

      If the balance in general reserve for the period of March was Rs 4,000 and in April the balance was Rs 7,000, then its treatment in cash flow would be:

       

      • 0
      • Share
        Share
        • Share on Facebook
        • Share on Twitter
        • Share on LinkedIn
        • Share on WhatsApp

    Related Questions

    • How are contingent liabilities disclosed in financial statements?
    • How is accounting income different from taxable income?
    • What is creative accounting? What are its ethical implications?
    • Why is Cost of Goods Sold taken as numerator instead of revenue while calculating the Inventory Turnover Ratio?
    • Which is a broader term between the two- Income or Revenue?
    • What is the difference between outstanding expenses and accrued expenses?
    • Why do we segregate assets into financial and non-financial assets?

    Sidebar

    Question Categories

    • 1. Financial Accounting

        • Accounting Terms & Basics
        • Bank Reconciliation Statement
        • Banks & NBFCs
        • Bills of Exchange
        • Capital & Revenue Expenses
        • Consignment & Hire Purchase
        • Consolidation
        • Contingent Liabilities & Assets
        • Departments & Branches
        • Depreciation & Amortization
        • Financial Statements
        • Goodwill
        • Insurance Accounting
        • Inventory or Stock
        • Investment Accounting
        • Journal Entries
        • Ledger & Trial Balance
        • Liquidation & Amalgamation
        • Miscellaneous
        • Not for Profit Organizations
        • Partnerships
        • Ratios
        • Shares & Debentures
        • Source Documents & Vouchers
        • Subsidiary Books
    • 2. Accounting Standards

        • AS
        • IFRS
        • IndAS
    • 3. Cost & Mgmt Accounting
    • 4. Taxes & Duties

        • GST
        • Income Tax
    • 5. Audit

        • Bank Audit
        • Internal Audit
        • Miscellaneous - Audit
        • Statutory Audit
    • 6. Software & ERPs

        • Tally
    • 7. MS-Excel
    • 8. Interview & Career
    • Top Questions
    • I need 20 journal entries with ledger and trial balance?

    • Can you show 15 transactions with their journal entries, ledger, ...

    • What is furniture purchased for office use journal entry?

    • What is the Journal Entry for Closing Stock?

    • What is loose tools account and treatment in final accounts?

    • What is the journal entry for goods purchased by cheque?

    • What is commission earned but not received journal entry?

    • What is the journal entry for interest received from bank?

    • How to show adjustment of loose tools revalued in final ...

    • Following is the Receipts and Payments Account of Bharti Club ...

    Hot Topics

    Accounting Policies Accounting Principles Balance Sheet Bank Reconciliation Statement Bill of Exchange Branch Accounting Calls in Advance Capital Capital Expenditure Companies Act Compound Entry Consignment Creditors Current Assets Debit Balance Debtors Depreciation Difference Between Dissolution of Firm Dissolution of Partnership Drawings External Users Fictitious Assets Final Accounts Financial Statements Fixed Assets Fixed Capital Fluctuating Capital Gain Impairment Installation Interest Received in Advance Internal Users Journal Entry Ledger Loose Tools Miscellaneous Expenditure Profit Rent Rent Received in Advance Reserves Revaluation Revenue Expenditure Revenue Reserve Sacrificing Ratio Subscription Subscription Received in Advance Trial Balance Type of Account Uncalled Capital
    • Home
    • Questions
      • Most Visited
      • Most Active
      • Trending
      • Recent
    • Follow
      • Categories
      • Users
      • Tags
    • Write an Answer
    • Badges & Points
    • Request New Category
    • Send a Suggestion

    Most Helping Users

    Astha

    Astha

    • 50,286 Points
    Leader
    Simerpreet

    Simerpreet

    • 72 Points
    Helpful
    AbhishekBatabyal

    AbhishekBatabyal

    • 65 Points
    Helpful

    Footer

    • About Us
    • Contact Us
    • Pricing
    • Refund
    • Forum Rules & FAQs
    • Terms and Conditions
    • Privacy Policy
    • Career

    © 2021 All Rights Reserved
    Accounting Capital.