Question

2. Cash flow statement is different as it classifies financial information into three major heads which allow the stakeholders in effective decision making. Discuss the broad heads as defined under AS 3 cash flow statement. What can be the potential benefits of preparing a cash flow statement? Elaborate (

Answer 1

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Answer 2

The three broad categories of financial information existing in a cash flow statement conferring to AS 3 are:

1. Operating activities,  

2. Investing activities, and  

3. Financing activities.

Explanation:

• Cash flows instigating from operating activities are a consequence of main revenue-generating business events such as cash obtained from sales and money paid to suppliers.

• Cash flows from investing activities, in contrast, are a description of outflows made associated with business investments for future income in the structure of investments.  

• Lastly, cash flows from financing activities are linked with all transactions related to the size of the corporation’s capital and the debts involved.  

• The principal benefit of a cash flow statement is that it supports businesses to gather the correct figures of cash outflows and inflows in different business processes.  

• Consequently, the organization can compare prior cash budgets to present ones to conclude future cash requisites.