as 3, Accounting Standard 3: Cash Flow Statement: The Standard deals with the arrangement of info about the historic changes in money and cash equivalents of an enterprise by ways of a Capital Statement which classifies cash flows throughout the duration from operating, investing
and financing activities.
- For Business– As per the Business Act, 2013, Capital Declaration is required to be prepared by every business other than an one person, small and inactive business.
- For non-companies– AS 3 is not necessary for entities falling in Level II and Level III.
Cash consists of money on hand and demand deposits with banks.
Cash equivalents are short term, highly liquid investments that are easily convertible into recognized amounts of money and which go through an insignificant risk of modifications in worth.
⇒ A financial investment generally certifies as a cash equivalent only when it has a brief maturity of, state, 3 months or less from the date of acquisition.
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Accounting Requirement– 3, Capital Declaration (AS 3)
The primary factor for the preparation of the Cash Flow Statement is that the Earnings Declaration of an enterprise is always prepared on an Accrual Basis and it might reveal revenues in the Earnings Declaration but the Cash got out of these earnings may be low to run business or vice-versa.
The Capital Declaration should report cash flows during the period categorized by operating, investing and funding activities
The money flows associated with extraordinary items must be categorized as emerging from operating, investing or funding activities as suitable and independently revealed.
Classification of Cash Streams as per Accounting Standard 3
While preparing the Cash Flow Statement, the money flows during the period are categorized into 3 significant classifications:–LRB- .
- Cash Flow from Operating Activities (Direct Technique/ Indirect Technique)
- Cash Flow from Investing Activities
- Capital from Financing Activities
1. Money From Running Activities:
The principal earnings producing activities of a business are called the operating activities of that business. These are the primary activities in which it deals. Cash flows developing from these activities are called the money flows from running activities. Money flows from operating activities are the main source of income for a business issue. eg. for a company dealing in manufacture of electronics, selling of electronic parts or finished items are the principal revenue producing activities of the concern. For a finance company, exchanging of loans, purchase and sale of securities are the primary profits producing activities
A. Capital from Running Activity- Direct Technique:
While preparing the Money Flow Statement as per Direct Method, Actual Cash Receipts from Operating Revenues and Actual Cash Payments for Running Activities are arranged and presented in the Cash Flow Declaration. The distinction in between Cash Invoices and Money Payments is the Net Money Circulation from Running Activities under the Direct Technique.
B. Cash Flow from Operating Activity– Indirect Method:
While preparing the Cash Flow Statement based on the Indirect Method, the Net Profit/Loss for the period is used as the base and after that modifications are produced products that impacted the Income Declaration however did not affect the Cash
2. Money From Investing Activities:
For carrying out organization smoothly, an enterprise gets long-term properties like machinery, furniture, land, and structure. All this results in the inflow and outflow of cash. These circulations of cash are termed as Money streams from Investing Activities.
3. Cash Streams from Funding Activities
Financing Activities are those activities which result in a modification in the size and composition of owner’s capital and borrowing of the organisation. The separate disclosure of cash streams developing from funding activities is important since it works in predicting the claims on future cash flows by the service providers of funds.