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C H A P T E R

Cash Flow Statement—Based on

Accounting Standard-3 (Revised)

(Only for Non-Financing Companies)

MEANING OF KEY TERMS USED IN THE CHAPTER

1. Cash Flow Statement
It is the statement that shows flow of Cash and Cash Equivalents during the period under report.
2. Cash Flows

These are the inflows (receipts) and outflows (payments) of Cash and Cash Equivalents.
3. Cash
It comprises of Cash on Hand and demand deposits with banks.

4. Cash Equivalents
These are short-term, highly liquid investments that are readily convertible into known amount of cash
and which are subject to an insignificant risk of change in value. An investment normally qualifies as
cash equivalent only when it has short maturity period of, say, three months or less from the date
of acquisition, i.e., purchase.
Short-term Investments and Marketable Securities are taken as Cash and Cash Equivalents.
Cash equivalents are held for the purpose of meeting short-term cash commitments rather than
for investment or other purposes.

5. Operating Activities
These are the principal revenue producing activities of the enterprise and other activities that are not
Investing or Financing Activities.

6. Investing Activities
These are activities of acquisition and disposal of long-term assets and other investments not
included in cash equivalents.

7. Financing Activities
These are the activities that result in change in the size and composition of the owner’s capital
(including preference share capital in the case of a company) and borrowings of the enterprise.
Bank Overdraft and Cash Credit are taken as Short-term Borrowings. Thus, they are shown under
Financing Activities.