BBI-FRA - As 3 CFS

According to AS 3 (Revised) on “Cash Flow Statements”, cash flow statement deals with the

provision of information about the historical changes in cash and cash equivalents of an

enterprise during the given period from operating, investing and financing activities. Cash

flows from operating activities can be reported using either

(a) the direct method, whereby major classes of gross cash receipts and gross cash

payments are disclosed; or

(b) the indirect method, whereby net profit or loss is adjusted for the effects of

transactions of non–cash nature, any deferrals or accruals of past or future

operating cash receipts or payments, and items of income or expense associated

with investing or financing cash flows.

As per para 42 of AS 3 (Revised), an enterprise should disclose the components of cash

and cash equivalents and should present a reconciliation of the amounts in its cash flow

statement with the equivalent items reported in the balance sheet.

A cash flow statement when used in conjunction with the other financial statements,

provides information that enables users to evaluate the changes in net assets of an enterprise,

its financial structure (including its liquidity and solvency), and its ability to affect the amount

and timing of cash flows in order to adapt to changing circumstances and opportunities. This

statement also enhances the comparability of the reporting of operating performance by

different enterprises because it eliminates the effects of using different accounting treatments

for the same transactions and events.

AS 3 (revised) is recommendatory at present but for companies listed on stock

exchanges, its compliance is mandatory due to the listing agreement which provides for the

listed companies to furnish cash flow statement in their Annual Reports.