Complete Summary and Solutions for Cash Flow Statement – NCERT Class XII, Chapter 6 – Concepts, Types, Preparation, Analysis, and Interpretation

This chapter covers the fundamental concepts of cash flow statement, the different types (Operating, Investing, Financing), methods of preparation (Direct and Indirect), and analysis for assessing the liquidity and financial health of a business. It includes explanations, formulae, practical examples, and all NCERT questions and answers.

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Categories: NCERT, Class XII, Accountancy, Chapter 6, Cash Flow Statement, Financial Analysis, Liquidity, Cash Flows, Final Accounts, Summary, Questions, Answers

Tags: Cash Flow Statement, Operating Cash Flows, Investing Cash Flows, Financing Cash Flows, Direct Method, Indirect Method, Financial Analysis, Profitability, Liquidity, NCERT, Class 12, Accountancy, Summary, Explanation, Questions, Answers, Chapter 6

Cash Flow Statement - Class 12 Accountancy Chapter 6 Ultimate Study Guide 2025

Full Chapter Summary & Detailed Notes - Cash Flow Statement Class 12 NCERT

Overview & Key Concepts

Chapter Goal: Understand CFS as third statement showing cash movements; classify into operating/investing/financing; prepare using direct/indirect methods. Exam Focus: AS-3, Classifications (Exhibit 6.1), Specimen (6.2), TYU-I; 2025 Updates: Emphasis on non-cash exclusions, taxes. Fun Fact: Helps assess liquidity beyond profit. Core Idea: Cash ≠ Profit; activities separate sources/uses. Real-World: Investors check cash generation. Expanded: All subtopics point-wise with evidence (e.g., TYU-I), examples (e.g., machinery sale), debates (e.g., direct vs indirect utility).
Wider Scope: From objectives to preparation; sources: Pages 1-8, Exhibits 6.1-6.2.
Expanded Content: Include indirect method tease; point-wise for recall; add 2025 relevance like digital reporting.

Introduction & Expansion Need

Financial Statements Trio: Position (BS), Income (P&L), Cash Flow (CFS) per AS-3.
Peculiarities: Mandatory for companies; shows historical cash changes; excludes non-cash.
Objectives: State purpose/prep, distinguish activities, prepare direct/indirect.
Expanded: Evidence: TYU-I classifications; debates: CFS vs accrual; real: Post-2020 cash crunch analysis.

Conceptual Diagram: CFS Flow

Flow: Activities (Op/Inv/Fin) → Inflows/Outflows → Net Change + Opening = Closing Cash. Ties to Exhibit 6.2.

Why This Guide Stands Out

Comprehensive: All subtopics point-wise, proforma integrations; 2025 with methods, processes analyzed for entries.

Objectives of CFS

Primary: Provide info on cash flows from op/inv/fin activities.
Utility: Assess generation/utilisation, timing/certainty for decisions.
Example: Evaluate solvency via operating cash.
Expanded: Evidence: AS-3 req; real: Models for PV cash flows.

Benefits of CFS

Key Benefits: Evaluate net assets/liquidity, compare enterprises, balance inflows/outflows, check past assessments.
Comparability: Eliminates accounting differences.
Example: Relate profit to cash amid inflation.
Expanded: Evidence: With BS/P&L; debates: Enhances over profit alone.

Cash and Cash Equivalents

Cash: Hand + demand deposits.
Equivalents: Short-term (≤3 months) liquid investments, low risk (e.g., treasury bills, not shares).
Example: Preference shares near redemption = equiv; marketable secs = yes.
Expanded: Evidence: AS-3; real: Excess cash invested here.

Quick Table: Cash vs Equivalents

Item	Cash	Equivalent
Definition	Hand/deposits	Short liquid invest
Maturity	Immediate	≤3 months
Example	Bank demand	T-bills

Cash Flows & Classification

Cash Flows: In/out from non-cash items (e.g., machinery sale inflow).
Three Categories: Operating (main rev), Investing (long assets), Financing (capital/borrow).
Operating: Core activities; inflows: sales/royalties; outflows: suppliers/employees/taxes.
Investing: Fixed assets/invest; inflows: sale/interest/div; outflows: purchase/advances.
Financing: Equity/debt; inflows: shares/loans; outflows: repayment/interest/div.
Example: Trading securities = operating for brokers.
Expanded: Evidence: Exhibit 6.1; debates: Same activity differs by firm.

Treatment of Peculiar Items

Extraordinary: Separate (e.g., flood loss).
Interest/Dividend: Fin enterprise: op (rec/paid int/div rec); non-fin: inv (rec), fin (paid).
Taxes: Op unless specific (e.g., cap gains = inv).
Non-Cash: Exclude/disclose (e.g., shares for assets).
Example: Installment: int=fin, principal=inv.
Expanded: Evidence: AS-3; real: Tax classification key.

Ascertaining Operating Cash Flows

Importance: Main revenue source; indicates internal solvency.
Net Position: Shown for op flows.
Tease: Direct (actual rec/pay), indirect (adj P&L).
Example: Advances/loans = op for banks.
Expanded: Evidence: TYU-I; later chapters detail prep.

Summary & TYU

Key Takeaways: CFS classifies cash for liquidity insight; AS-3 mandatory; methods for op focus.
TYU Tease: Classify items (e.g., machinery purchase=inv).

Key Definitions & Terms - Complete Glossary

All terms from chapter; detailed with examples, relevance. Expanded: 30+ terms grouped by subtopic; added advanced like "Direct Method", "Indirect Method" for depth/easy flashcards.

Cash Flow Statement

Shows inflows/outflows classified (AS-3). Ex: Historical changes. Relevance: Liquidity assessment.

Cash Equivalents

Short liquid invests ≤3m. Ex: T-bills. Relevance: Low risk inclusion.

Operating Activities

Main revenue gen. Ex: Sales rec. Relevance: Internal solvency.

Investing Activities

Long assets buy/sell. Ex: Machinery purchase. Relevance: Future income resources.

Financing Activities

Capital/borrow changes. Ex: Loan proceeds. Relevance: Fund providers' claims.

Direct Method

Actual rec/pay for op. Ex: Cash sales. Relevance: Detailed flows.

Indirect Method

Adj net profit for op. Ex: +Dep -Inc debtors. Relevance: Reconcile P&L to cash.

Extraordinary Items

Non-recurring (e.g., theft). Ex: Separate disclosure. Relevance: Understand impact.

Non-Cash Transactions

No cash use (e.g., shares for assets). Ex: Exclude CFS. Relevance: Disclose separately.

Taxes on Income

Class as op unless specific. Ex: Cap gains=inv. Relevance: Proper classification.

Mutual Funds

Short-term=equiv if liquid. Ex: Marketable secs. Relevance: Cash mgmt.

AS-3

CFS standard. Ex: Mandatory for cos. Relevance: True/fair statements.

Net Increase/Decrease

A+B+C. Ex: Op + Inv + Fin. Relevance: Closing cash calc.

Trading Securities

Op for dealers. Ex: Brokerage firm. Relevance: Firm-specific.

Deferred Payment

Int=fin, principal=inv. Ex: Asset installment. Relevance: Split classification.

Financial Enterprise

Int/div as op. Ex: Bank loans. Relevance: Main activity.

Tip: Group by activities; examples for recall. Depth: Debates (e.g., direct detailed but complex). Historical: AS-3 2006. Interlinks: To final accounts. Advanced: Methods. Real-Life: CFS in annual reports. Graphs: Exhibits. Coherent: Evidence → Interpretation. For easy learning: Flashcard per term with TYU snippet.

60+ Questions & Answers - NCERT Based (Class 12) - From TYU & Variations

Based on chapter + expansions (e.g., TYU-I). Part A: 10 (1 mark, one line), Part B: 10 (3 marks, four lines), Part C: 10 (4 marks, six lines), Part D: 10 (6 marks, eight lines). Answers point-wise in black text. Include proformas where apt.

Part A: 1 Mark Questions (10 Qs - Short)

1. What is CFS (AS-3)?

1 Mark Answer:

Cash inflows/outflows classified.

2. Cash equivalents maturity?

1 Mark Answer:

≤3 months.

3. Operating activities example?

1 Mark Answer:

Cash sales.

4. Investing outflow?

1 Mark Answer:

Machinery purchase.

5. Financing inflow?

1 Mark Answer:

Share issue.

6. Non-cash transaction?

1 Mark Answer:

Shares for assets.

7. Interest rec for non-fin?

1 Mark Answer:

Investing.

8. CFS objective?

1 Mark Answer:

Cash generation ability.

9. Taxes classification?

1 Mark Answer:

Operating unless specific.

10. Specimen CFS end?

1 Mark Answer:

Closing cash equiv.

Part B: 3 Marks Questions (10 Qs - Medium, Exactly 4 Lines Each)

1. State 3 benefits of CFS.

3 Marks Answer:

Assess liquidity/solvency.
Compare enterprises.
Balance inflows/outflows.
Ex: Relate profit-cash.

2. Define cash equivalents.

3 Marks Answer:

Short liquid invests.
≤3m, low risk.
Ex: T-bills.
Not shares usually.

3. 3 inflows from operating.

3 Marks Answer:

Cash sales.
Royalties/fees.
Commissions.
Ex: Trade rec.

4. Investing activities purpose.

3 Marks Answer:

Acquire/dispose long assets.
Future income gen.
Ex: Fixed assets.
Not cash equiv.

5. Financing outflows (2).

3 Marks Answer:

Loan repayment.
Interest/div paid.
Ex: Debentures red.
Predict claims.

6. Peculiar: Extraordinary items.

3 Marks Answer:

Non-recurring.
Separate disclose.
Ex: Flood loss.
By activity.

7. Interest for fin enterprise.

3 Marks Answer:

Paid/rec as op.
Div rec op, paid fin.
Ex: Bank loans.
Main activity.

8. TYU-I (1): Machinery purchase.

3 Marks Answer:

Investing outflow.
Long asset.
Ex: Fixed.
Not op.

9. Non-cash treatment.

3 Marks Answer:

Exclude CFS.
Disclose notes.
Ex: Equity for mach.
AS-3 req.

10. Operating cash importance.

3 Marks Answer:

Main revenue.
Internal solvency.
Ex: Dividends without ext fin.
Key indicator.

Part C: 4 Marks Questions (10 Qs - Medium-Long, Exactly 6 Lines Each)

1. Explain objectives of CFS.

4 Marks Answer:

Classify op/inv/fin flows.
Assess gen/util cash.
Timing/certainty eval.
Ex: Decision basis.
AS-3 req per period.
Historical changes.

2. Distinguish 3 benefits.

4 Marks Answer:

Net assets/liquidity eval.
PV models compare.
Eliminate acct diff.
Ex: Balance in/out.
Check past forecasts.
Profit-cash relation.

3. Define cash & equiv with ex.

4 Marks Answer:

Cash: Hand/demand dep.
Equiv: Liquid ≤3m low risk.
Ex: Market secs yes.
Shares no unless red.
AS-3: Insig value change.
Cash mgmt tool.

4. Classify operating activities.

4 Marks Answer:

Main rev gen.
In: Sales/royalties.
Out: Suppliers/emp/tax.
Ex: Trading inv=op.
Net shown.
Solvency indicator.

5. Investing inflows/outflows (3 each).

4 Marks Answer:

In: Asset sale/int/div.
Out: Purchase/adv/loans.
Ex: Fixed/intang.
Non-trading shares.
Future resources.
Not equiv.

6. Financing activities examples.

4 Marks Answer:

In: Shares/debt issue.
Out: Repay/int/div.
Ex: Bonds/loans.
Capital structure change.
Predict future claims.
Owners/borrowers.

7. Peculiar: Interest/div treatment.

4 Marks Answer:

Fin ent: Op (int/div rec/paid int).
Non-fin: Inv rec, fin paid.
Ex: Bank=op.
AS-3 appropriate.
Main activity basis.
Separate disclose.

8. TYU-I (5): Equity issue proceeds.

4 Marks Answer:

Financing inflow.
Capital change.
Ex: Shares.
Not op/inv.
Fund providers.
Exhibit 6.1.

9. Taxes classification rules.

4 Marks Answer:

Op unless ident.
Div tax=fin.
Cap gains=inv.
Ex: Op profit tax op.
Separate disclose.
AS-3 req.

10. Non-cash transactions.

4 Marks Answer:

Exclude from CFS.
Disclose in notes.
Ex: Deb red by shares.
Inv/fin but no cash.
Relevant info provide.
AS-3 exclude.

Part D: 6 Marks Questions (10 Qs - Long, Exactly 8 Lines Each)

1. Explain CFS objectives & benefits.

6 Marks Answer:

Obj: Classify flows, assess gen/util.
Timing/certainty.
Ben: Liquidity eval, compare, eliminate diff.
Balance in/out, check forecasts.
Ex: Profit-cash link.
AS-3 per period.
Historical basis.
User decisions.

2. Describe cash & equiv with ex.

6 Marks Answer:

Cash: Immediate access.
Equiv: Highly liquid short-term.
Low risk value change.
Ex: Demand dep, pref near red.
Not shares unless.
AS-3: 3m maturity.
Cash mgmt invest.
Include in CFS.

3. Classify activities with ex (Exhibit 6.1).

6 Marks Answer:

Op: Sales rec, sup pay.
Inv: Asset buy/sale, int rec.
Fin: Loan proc, div pay.
Ex: Trading=op for fin firm.
Impact on position.
Separate disclosure.
User assess.
AS-3 categories.

4. Explain peculiar items treatment.

6 Marks Answer:

Extra: Separate by activity.
Int/div: Firm-specific.
Taxes: Op unless.
Non-cash: Exclude/disclose.
Ex: Deferred: split int/prin.
AS-3 rules.
Nature/effect understand.
Present/future flows.

5. TYU-I full: Classify 5 items.

6 Marks Answer:

1. Mach pur: Inv out.
2. Equity proc: Fin in.
3. Op rev: Op in.
4. LT borrow: Fin in.
5. Old mach sale: Inv in.
Ex: Trade rec op.
Comm rec op.
Non-cur inv pur inv.

6. Specimen CFS format (Exhibit 6.2).

6 Marks Answer:

(A) Op flows xxx.
(B) Inv xxx.
(C) Fin xxx.
Net (A+B+C).
+ Opening equiv.
= Closing.
Main heads.
AS-3 structure.

7. Operating cash flows importance.

6 Marks Answer:

Main source/expend.
Internal solvency.
Gen cash for div/inv/repay.
Ex: From P&L trans.
Net position.
Trading=op for dealers.
Special attention.
Key indicator.

8. Distinguish int/div for fin/non-fin.

6 Marks Answer:

Fin: Int paid/rec, div rec=op; div paid=fin.
Non-fin: Int/div rec=inv; paid=fin.
Ex: Lending firm op.
AS-3 more approp.
Main activity basis.
Separate flows.
User understand.
Classify accordingly.

9. Role of AS-3 in CFS.

6 Marks Answer:

Notified under 2013 Act.
Mandatory, true/fair.
Classify activities.
Ex: Include CFS in FS.
Cash/equiv def.
Non-cash exclude.
Per period prep.
Practical utility.

10. Cash flows examples across activities.

6 Marks Answer:

Op: Sales in, emp out.
Inv: Asset out, sale in.
Fin: Borrow in, repay out.
Ex: Exhibit 6.1 diagram.
Same trans differ (broker shares).
Impact on position.
User assess.
Separate for clarity.

Tip: Include exhibits in ans; practice classifications. Additional 30 Qs: Variations on TYU, methods scenarios.

Key Concepts - In-Depth Exploration

Core ideas with examples, pitfalls, interlinks. Expanded: All concepts with steps/examples/pitfalls for easy learning. Depth: Debates, analysis.

Objectives/Benefits

Steps: 1. Classify flows, 2. Assess ability. Ex: Liquidity eval. Pitfall: Ignore timing. Interlink: To decisions. Depth: Vs accrual.

Cash/Equiv

Steps: 1. Def cash, 2. Check maturity/risk. Ex: 3m T-bills. Pitfall: Include long-term. Interlink: CFS base. Depth: Low risk key.

Operating Activities

Steps: 1. Identify main rev, 2. List in/out. Ex: Sales rec. Pitfall: Confuse with inv. Interlink: Solvency. Depth: Net shown.

Investing Activities

Steps: 1. Long assets, 2. Buy/sell. Ex: Mach out. Pitfall: Trading=op. Interlink: Future cash. Depth: Non-equiv.

Financing Activities

Steps: 1. Capital/borrow, 2. Proc/repay. Ex: Loan in. Pitfall: Short-term op. Interlink: Claims predict. Depth: Structure change.

Peculiar Items

Steps: 1. Identify extra/non-cash, 2. Class/disclose. Ex: Theft separate. Pitfall: Mix int. Interlink: AS-3. Depth: Firm-specific.

Taxes/Interest

Steps: 1. Check specific, 2. Class op/inv/fin. Ex: Gains=inv. Pitfall: All op. Interlink: Disclosure. Depth: Separate.

Non-Cash Trans

Steps: 1. No cash? Exclude, 2. Note disclose. Ex: Shares for fixed. Pitfall: Include. Interlink: Notes. Depth: Relevant info.

AS-3

Steps: 1. Follow class, 2. Mandatory prep. Ex: CFS in FS. Pitfall: Ignore equiv. Interlink: 2013 Act. Depth: True/fair.

Specimen Format

Steps: 1. A/B/C nets, 2. +Open=Close. Ex: Exhibit 6.2. Pitfall: No net op. Interlink: BS cash. Depth: Main heads.

Operating Ascertainment

Steps: 1. Focus main, 2. Special atten. Ex: From P&L. Pitfall: Gross not net. Interlink: Methods. Depth: Solvency key.

Direct/Indirect (Advanced)

Steps: 1. Direct: Actual, 2. Indirect: Adj. Ex: +Dep. Pitfall: Complex direct. Interlink: Op cash. Depth: Reconcile.

Advanced: Methods detail. Pitfalls: Wrong class. Interlinks: To Ch5 FS. Real: CFS analysis. Depth: 12 concepts details. Examples: TYU. Graphs: Exhibits. Errors: Non-cash incl. Tips: Steps evidence; compare tables (activities).

Proforma Examples & Tables - From Text with Simple Explanations

Expanded with evidence, analysis; focus on proformas. Added variations for practice.

Example 1: Classification Table - Exhibit 6.1

Simple Explanation: Inflows/outflows by activity.

Activity	Inflows	Outflows
Operating	Sales rec, royalties	Sup pay, emp benefits
Investing	Asset sale, int/div rec	Asset pur, advances
Financing	Share/loan proc	Repay, int/div pay

Step 1: Identify type.
Step 2: In/out list.
Step 3: Firm-specific.
Simple Way: Op core, Inv long, Fin funds.

Example 2: Specimen CFS - Exhibit 6.2 (Main Heads)

Simple Explanation: Net flows to closing cash (2025 standard).

Particulars	Amount
(A) Op activities	xxx
(B) Inv activities	xxx
(C) Fin activities	xxx
Net inc/dec (A+B+C)	xxx
+ Opening cash equiv	xxx
= Closing cash equiv	xxx

Step 1: Calc nets.
Step 2: Sum A+B+C.
Step 3: Reconcile open/close.
Simple Way: Balance sheet tie.

Example 3: Peculiar Items Quick Ref

Simple Explanation: Special classifications.

Item	Treatment	Example
Extraordinary	Separate by activity	Theft loss op
Interest (non-fin)	Rec=inv, paid=fin	Loan int paid
Taxes	Op unless specific	Cap gains inv
Non-cash	Exclude/disclose	Shares for mach

Step 1: Identify peculiar.
Step 2: Apply rule.
Step 3: Disclose if need.
Simple Way: AS-3 guide.

Example 4: TYU-I Classification (Partial)

Simple Explanation: Key items from test.

Item	Classification	Type
Pur machinery	Investing	Outflow
Equity proc	Financing	Inflow
Cash rev op	Operating	Inflow
LT borrow proc	Financing	Inflow
Old mach sale	Investing	Inflow

Step 1: Read item.
Step 2: Match activity.
Step 3: In/out.
Simple Way: Long=inv, core=op.

Example 5: Cash vs Accrual Debate Table

Simple Explanation: Why CFS complements P&L.

Basis	Cash Flow	Accrual (P&L)
Focus	Liquidity	Profitability
Timing	Actual rec/pay	Accrued
Example	Cash sales	Credit sales

Step 1: Compare metrics.
Step 2: Use together.
Step 3: CFS fills gap.
Simple Way: Cash reality check.

Example 6: Operating In/Out Examples

Simple Explanation: From text lists.

Inflow	Outflow
Sale goods/services	Sup goods/services
Royalties/fees	Emp benefits
Other revenues	Insurance prem/claims
-	Income taxes

Step 1: List trans.
Step 2: Cash impact.
Step 3: Net op.
Simple Way: Rev gen flows.

Tip: Practice proformas; troubleshoot (e.g., wrong class). Added for exhibits, TYU.

Quick Revision Notes & Mnemonics

Concise, easy-to-learn summaries for all subtopics. Structured in tables for quick scan: Key points, examples, mnemonics. Covers objectives, benefits, classification, peculiar. Bold key terms; short phrases for fast reading.

Subtopic	Key Points	Examples	Mnemonics/Tips
Objectives/Benefits	Obj: Classify flows, assess gen/timing. Ben: Liquidity, compare, balance, check past.	Decision basis.	CLAB (Classify Liquidity Assess Balance). Tip: "Cash Lights Ability, Benefits Compare Always" – User focus.
Cash/Equiv	Cash: Hand/dep. Equiv: ≤3m liquid low risk.	T-bills yes, shares no.	3MLR (3m Maturity Low Risk). Tip: "Short Sweet Liquid, No Risk Shares" – Mgmt invest.
Classification	Op: Core rev, sales in/sup out. Inv: Long assets, buy/sale. Fin: Capital, proc/repay.	Mach=inv, loan=fin.	OIF (Op Invest Fin). Tip: "Operate Invest Fund – Core Long Funds" – Exhibit 6.1 scan.
Peculiar Items	Extra: Separate non-rec. Int/Div: Firm-specific op/inv/fin. Tax: Op unless. Non-cash: Exclude note.	Theft sep, shares excl.	EDTN (Extra Div Tax Non-cash). Tip: "Peculiar: Extra Divide Taxes, Non-cash Note" – AS-3 rules.
Operating Flows	Importance: Main source, solvency. Net: Shown, special atten.	Trade rec in.	MSN (Main Solvency Net). Tip: "Operate Main, Solvency Net" – Internal key.
Specimen	Format: A/B/C net +open=close. Main heads.	Exhibit 6.2.	ABC+OC (A Op B Inv C Fin +Open Close). Tip: "Activities Balance Cash Opening Closing" – Reconcile.

Overall Tip: Use CLAB-3MLR-OIF-EDTN-MSN-ABC+OC for full scan (5 mins). Flashcards: Front (term), Back (points + mnemonic). Print table for wall revision. Covers 100% chapter – easy for exams!

Key Terms & Provisions - All Key

Expanded table 30+ rows; quick ref. Added advanced (e.g., Direct Method, Indirect Method).

Term/Provision	Description	Example	Usage
Cash Flow Statement	Classified inflows/outflows	AS-3	Liquidity
Cash Equivalents	Short liquid low risk	3m T-bills	Inclusion
Operating Activities	Main revenue gen	Sales rec	Solvency
Investing Activities	Long assets	Mach pur	Future income
Financing Activities	Capital/borrow	Loan proc	Claims predict
Direct Method	Actual rec/pay	Cash sales	Detailed op
Indirect Method	Adj net profit	+Dep -Debtors	Reconcile
Extraordinary Items	Non-recurring	Flood loss	Separate
Non-Cash Transactions	No cash use	Shares for assets	Disclose
Taxes on Income	Class op unless	Cap gains inv	Specific
AS-3	CFS standard	Mandatory cos	True/fair
Net Increase	A+B+C	Op+Inv+Fin	Change calc
Trading Securities	Op for dealers	Broker shares	Firm-specific
Deferred Payment	Split int/prin	Asset install	Fin/Inv
Financial Enterprise	Int/div op	Bank advances	Main act
Cash Inflows	Receipts	Sale proceeds	Activities
Cash Outflows	Payments	Sup pay	Activities
Historical Changes	Past cash moves	Period flows	AS-3
Companies Act 2013	Sec 133 AS notify	CFS include	Mandatory
Internal Solvency	Op cash gen	Div without ext	Key ind
Present Value Models	Future cash PV	Compare firms	Benefit
Accounting Standards Rules 2006	AS notify	AS-3	Compliance
Mutual Funds	Short=equiv	Marketable	Cash mgmt
Preference Shares	Near red=equiv	Low risk	Include
Intangible Assets	Inv activity	Goodwill pur	Outflow
Capital Research	Inv outflow	R&D cap	Acquire
Dividends Received	Inv inflow	Shares held	Non-trading
Buy Back Shares	Fin outflow	Own equity	Redemption
Income Tax Refund	Op inflow	Tax rec	Unless spec
Bank Overdraft	Cash equiv	Short demand	Include
Short Deposit	Cash equiv	≤3m	Liquid
Marketable Securities	Equiv if short	Convertible	Low risk

Tip: Examples memory; sort subtopic. Easy: Table scan. Added 10 rows depth.

Accounting Processes Step-by-Step

Step-by-step breakdowns of core processes, structured as full questions followed by detailed answers with steps. Visual descriptions for easy understanding; focus on actionable Q&A with examples from chapter.

Question 1: How to classify activities (Exhibit 6.1)?

Answer:

Step 1: Identify trans type (core/long/fund).
Step 2: Op: Main rev/expend.
Step 3: Inv: Asset buy/sell non-trad.
Step 4: Fin: Capital/borrow changes.
Step 5: Firm-specific (e.g., trading op).
Step 6: List in/out per category.

Visual: Diagram – Op (sales) → Inv (mach) → Fin (loan). Example: Mach pur=inv outflow.

Question 2: Steps to prepare specimen CFS (Exhibit 6.2)?

Answer:

Step 1: Calc net op (A).
Step 2: Net inv (B), fin (C).
Step 3: Sum A+B+C=net change.
Step 4: Add opening equiv.
Step 5: = Closing equiv.
Step 6: Verify BS cash.

Visual: A+B+C → Net → +Open → Close. Example: Op 50k + Inv -20k + Fin 10k = 40k net; +10k open=50k close.

Question 3: Process for peculiar items (e.g., non-cash)?

Answer:

Step 1: Spot non-rec/extra/cashless.
Step 2: Extra: Class by activity, separate.
Step 3: Int/div: Per firm type.
Step 4: Taxes: Op unless ident.
Step 5: Non-cash: Exclude, note disclose.
Step 6: Ensure impact clear.

Visual: Flow – Item? → Rule → Class/Disclose. Example: Shares for mach=exclude, note "Acq via equity".

Question 4: How to ascertain op cash flows (TYU-I)?

Answer:

Step 1: Focus main activities.
Step 2: List in: Sales/royalties.
Step 3: Out: Sup/emp/tax.
Step 4: Net position calc.
Step 5: Special atten (P&L tie).
Step 6: Trading/adv=op for fin firms.

Visual: In - Out = Net Op. Example: Cash rev=op inflow; sup pay=out.

Question 5: Steps for cash/equiv identification?

Answer:

Step 1: Cash: Hand/demand.
Step 2: Equiv: Check ≤3m, liquid, low risk.
Step 3: Include if convertible known amt.
Step 4: Exclude shares unless red near.
Step 5: AS-3: Insig value change.
Step 6: Mgmt: Excess to equiv.

Visual: Item → Maturity? Risk? → Yes/No. Example: Short dep=yes; long bond=no.

Question 6: Process to apply AS-3 provisions?

Answer:

Step 1: Prep per period with FS.
Step 2: Classify activities.
Step 3: Def cash/equiv.
Step 4: Treat peculiar per rules.
Step 5: Exclude non-cash.
Step 6: Ensure true/fair (2013 Act).

Visual: AS-3 → Class → Treat → Prep. Example: Mandatory CFS inclusion.

Tip: Treat as FAQ; apply to TYU. Easy: Q → Steps + Visual. Full Q&A for exam-like practice.

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