Class 12 Accountancy - ISC

Cash Flow Statement

The Cash Flow Statement chapter in Class 12 ISC Accountancy focuses on tracking the inflow and outflow of cash and cash equivalents in a business enterprise over an accounting period. As per AS-3 (Revised), this statement is divided into three distinct activities: Operating, Investing, and Financing. It matters significantly for board exams because it features a mandatory 6-to-8 mark long-answer numerical question. Mastering this chapter requires a strong grip on adjustments related to non-cash items, depreciation, proposed dividends, and tax, making it a high-scoring yet meticulous area of your ISC syllabus.

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Key Concepts

Operating Activities

Principal revenue-producing activities of the enterprise, calculated by adjusting net profit for non-cash and non-operating items and changes in working capital.

Investing Activities

Activities related to the acquisition and disposal of long-term assets and other investments not included in cash equivalents, such as purchase of machinery or sale of investments.

Financing Activities

Activities that result in changes in the size and composition of the owner's capital and borrowings of the enterprise, such as issuing shares, raising loans, or paying dividends.

Cash and Cash Equivalents

Comprises cash on hand, demand deposits with banks, and short-term, highly liquid investments that are readily convertible into known amounts of cash without insignificant risk of changes in value.

Indirect Method

The method mandated by ISC where net profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals, and items of income or expense associated with investing or financing cash flows.

Important Formulas

Net Cash from Operating Activities = Operating Profit before Working Capital Changes + Decrease in Current Assets & Increase in Current Liabilities - Increase in Current Assets & Decrease in Current Liabilities - Tax Paid

Operating Profit before Working Capital Changes = Net Profit Before Tax and Extraordinary Items + Non-Cash/Non-Operating Expenses (like Depreciation, Goodwill written off, Interest paid) - Non-Operating Incomes (like Dividend received, Profit on sale of asset)

Net Cash from Investing Activities = Sale of Fixed Assets + Sale of Investments + Interest/Dividend Received - Purchase of Fixed Assets - Purchase of Investments

Net Cash from Financing Activities = Issue of Shares/Debentures + Proceeds from Long-term Borrowings - Redemption of Debentures/Preference Shares - Repayment of Loans - Interest Paid - Dividend Paid

Net Increase/Decrease in Cash and Cash Equivalents = Net Cash from Operating Activities + Net Cash from Investing Activities + Net Cash from Financing Activities

Closing Cash and Cash Equivalents = Opening Cash and Cash Equivalents + Net Increase/Decrease in Cash and Cash Equivalents

Board Exam Info

In the ISC Class 12 Accountancy exam, the Cash Flow Statement typically carries around 6 to 8 marks. The exam invariably features one compulsory long-answer numerical question where students must prepare a complete Cash Flow Statement with multiple adjustments like provision for tax, proposed dividend, and accumulated depreciation.

Frequently Asked Questions

Are bank overdrafts treated as bank borrowings or cash equivalents?

In ISC Accountancy, bank overdrafts and cash credit are treated as short-term borrowings and are classified under Financing Activities, unlike cash and bank balances which are part of cash equivalents.

How do we treat proposed dividend of the current year and previous year?

The previous year's proposed dividend is added to net profit to calculate net profit before tax and also shown as an outflow under Financing Activities. The current year's proposed dividend is ignored for the cash flow statement as it is a contingent liability until approved.

Is it compulsory to write working notes in the board exam?

Yes, preparing working notes for Ledger Accounts (like Accumulated Depreciation Account, Fixed Assets Account, or Provision for Tax Account) is crucial because examiners award step marks for them, even if the final cash flow total goes wrong.

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More Accountancy Chapters - ISC Class 12

Partnership Fundamentals Goodwill Admission Of A Partner Retirement Death Of A Partner Dissolution Of Partnership Issue Of Shares Issue Of Debentures Redemption Of Debentures Company Final Accounts Financial Statement Analysis Ratio Analysis