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There are two methods used for the preparation of cash flow statement.
1. Direct Method
2. Indirect Method
The most widely used method is indirect method.
i think all companies ruled by three items of cash flows ,cash from operatingactivities,investing and financing activity.
From Cash Flow statements we get the reasons for change in the cash & cash Equivalent between two financial statement date.
cash means :- Cash in hand & Balance of Foreign Currency.
Cash Equavalent means :- Bank balances and other short term investment, Advances which are ready encashable.
Every Listed company should do this practice for making several management decisions. In india SEBI has already issued a notification asking the listed companies to submit a cash flow statement in the annual report. Also as per Indian accounting standard As-3 It has become a part of the financial statement of the Listed Companies.
While preparing the cash flow statement you have to explain the cash movements under three different heads.
1) Cash Flow from operating activities.
2) Cash Flow from Investing activities.
3) Cash Flow from Financing Activities.
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