are as under 3. 1. Cash flow statement cannot be equated with the income Statement. An Income Statement takes into account both cash as well as non-cash items and therefore, net cash does not necessarily mean net income of the business. 2 The cash balance as disclosed by the cash flow statement may not represent the real liquid position of the business since it can be easily influenced by postponing purchases and other payments. Cash flow statement cannot replace the Income Statement or the Funds Flow Statement. Each of them has a separate function to perform. In spite of these limitations it can be said that cash flow statement is a useful supplementary instrument It discloses the volume as well as the speed at which the cash flows in the different segments of the business, This helps the management in knowing the amount of capital tied up in a particular segment of the business. The technique of cash flow analysis, when used in conjunction with ratio analysis, serves as a barometer in measuring the profitability and financial position of the business. j64 The concept and technique of preparing a Cash Flow Statement will be clear with the help of illustrations given in the following pages. Cash from Operations From the following balances you are required to calculate cash from operations: 31 December 2003 2004 7 2 47.000 10.000 Debtors Bills Receivable Creditors Bills Payable Outstanding Expenses Prepaid Expenses Accrued Income Income received in advance Profit made durine the year 50.000 12.500 20,000 8.000 1.000 800 25,000 6,000 1.200 700 750 250 1,30,000 600 300 CASH FROM OPERATIONS 2 1.30.000 Particulars Profit made during the year Add: Decrease in Debtors Increase in Creditors Increase in Outstanding Expenses Decrease in Prepaid Expenses 3,000 5.000 200 100 8,300 1,38,300 2.500 2.000 150 SO Less: Increase in Bills Receivable Decrease in Bills Payable Increase in Accrued Income Decrease in Income received in Advance Cash from Operations Illustration 12.4. Statement of financial position of Mr. Arun is given below: Liabilities 1 Jan, 2003 31 Dec, 2003 Assets 4,700 1.33.600 1 Jan., 2003 Accounts Payable Capital 29,000 7.39.000 25.000 6.15.000 Cash Debtors Stock Building Other Fixed Assets 40,000 20,000 8,000 1.00.000 6,00.000 7.68,000 31 Dec. 2003 ? 30,000 17,000 13.000 80,000 5.00.000 6.40.000 7.68.000 6,40,000 Additional Information (a) There were no drawings. (b) There were no purchases or sales of either building or other fixed assets. Prepare a statement of Cash Flow