Cash Flow Statement

CBSE Class 12 Accountancy | 2026–27

1. Meaning

A Cash Flow Statement explains changes in cash and cash equivalents during the period through operating, investing and financing activities.

2. Operating Activities – Indirect Method

Start with the prescribed profit figure, adjust for non-cash items and non-operating items, then account for relevant working-capital changes and tax as required.

Worked Example

Profit before tax ₹1,00,000; depreciation ₹20,000; increase in trade receivables ₹10,000; increase in trade payables ₹5,000. Before tax adjustment, operating cash flow = ₹1,00,000 + ₹20,000 − ₹10,000 + ₹5,000 = ₹1,15,000.

3. Working Capital Rules

4. Investing Activities

These include cash transactions involving long-term assets and investments according to the applicable classification. Purchase of machinery for cash is an investing outflow; sale proceeds are an investing inflow.

5. Financing Activities

These relate to changes in owners’ capital and borrowings. Examples include issue of shares for cash and borrowing/repayment of loans, subject to prescribed classification.

6. Non-Cash Transactions

Transactions that do not involve cash are not included as cash flows merely because they affect accounting balances. They may require separate disclosure according to the applicable requirements.

🖼️ Cash Flow Map

Exam Practice

1. Classify transactions into operating, investing and financing.
2. Prepare operating activities using the indirect method.
3. Adjust profit for depreciation, working-capital changes and relevant non-operating items.
4. Prepare a complete Cash Flow Statement from comparative balance-sheet data.

MCQs

1. Depreciation is added back under the indirect method because it is non-cash. True.
2. Increase in trade receivables is normally subtracted in operating cash-flow calculation. True.
3. Increase in trade payables is normally added. True.
4. Purchase of machinery for cash is an investing outflow. True.
5. Issue of shares for cash is a financing inflow. True.