CMA Intermediate · Corporate Accounting and Auditing

Cash Flow Statement: formula sheet

Full chapter guide

Key formulas

Classification of cash flows: Net change in cash = Operating + Investing + Financing cash flows; Every cash flow is classified into one of these three activities.
Closing cash reconciliation: Opening cash and cash equivalents + Net increase (or − net decrease) = Closing cash and cash equivalents; The closing figure must agree with cash and cash equivalents in the balance sheet.
Cash equivalent test: Short-term + highly liquid + convertible to known amount of cash + insignificant risk of change in value; All the conditions must be met. An investment failing any one is not a cash equivalent.
Movements within cash: Transfer between cash and cash equivalents = not a cash flow; These are part of cash management and are excluded.
Net cash flow: Net increase or decrease in cash = Operating + Investing + Financing cash flows; Add to opening cash and cash equivalents to get closing cash and cash equivalents.
Operating activities test: Operating = principal revenue-producing activities + any activity that is not investing or financing; Use it last, after you have checked whether the item is investing or financing.
Investing activities test: Investing = acquisition or disposal of long-term assets and investments not included in cash equivalents; Includes loans given to others and their recovery.
Financing activities test: Financing = flows that change the size or composition of owners' capital and borrowings; Dividends paid and interest paid are financing under AS 3 for a non-financial enterprise. Under Ind AS 7 they may be financing or operating, applied consistently.
Treatment of interest and dividends under AS 3 (non-financial enterprise): Interest paid, dividend paid: Financing | Interest received, dividend received: Investing | Income tax paid: Operating; Use this when no instruction is given and the question follows AS 3. State your treatment and apply it consistently.
Treatment of interest and dividends under Ind AS 7: Interest paid, dividend paid: Operating or Financing | Interest received, dividend received: Operating or Investing | Income tax paid: Operating; The entity chooses and applies the choice consistently. Follow the question's instruction if it gives one; otherwise state your choice.
Non-cash items: Non-cash transactions are excluded from the statement; Example: shares issued to buy machinery for no cash. Disclose them elsewhere.
Operating profit before working capital changes: Profit before tax + Depreciation + Interest expense + Loss on sale of assets + Other non-cash expenses − Interest income − Dividend income − Profit on sale of assets − Other non-cash gains; Interest and dividend income are removed only when the question classifies them under investing activities. Interest expense is added back when it is classified under financing.
Cash generated from operations (indirect): Operating profit before working capital changes − Increase in inventories − Increase in trade receivables + Increase in trade payables (reverse the signs for decreases); Use only operating current assets and liabilities. Cash, bank and loans are not part of this adjustment.
Net cash from operating activities: Cash generated from operations − Income tax paid; Tax paid is normally shown as an operating outflow unless it can be specifically identified with investing or financing.
Cash received from customers (direct): Sales − Increase in trade receivables (or + Decrease in trade receivables); Start from credit sales if cash sales are given separately, and add cash sales.
Cash paid to suppliers (direct): Purchases + Decrease in trade payables (or − Increase in trade payables); Purchases = Cost of goods sold + Closing inventory − Opening inventory.
Cash paid for expenses (direct): Expense (excluding depreciation and other non-cash items) + Decrease in outstanding expenses + Increase in prepaid expenses; Reverse the signs for an increase in outstanding expenses or a decrease in prepaid expenses.
Purchase of fixed assets: Purchase = Closing gross block − Opening gross block + Gross cost of assets sold; Use gross (cost) figures. If only net block is given, use: Closing net block − Opening net block + Depreciation + Book value of assets sold.
Sale proceeds of an asset: Sale proceeds = Book value (cost − accumulated depreciation) + Profit on sale (or − Loss on sale); Show the full proceeds in investing. Remove the profit or loss from operating profit as a non-cash adjustment.
Share capital raised: Cash from shares = Increase in (share capital + securities premium) − Bonus shares − Shares issued for non-cash consideration; Only cash received is a financing inflow.
Net borrowings: Proceeds or repayment = Closing borrowings − Opening borrowings (adjusted for non-cash items); Show proceeds and repayments separately if both are known.
Interest paid: Interest paid = Interest expense + Opening interest payable − Closing interest payable; Classified as financing for an entity that is not a financial institution (Ind AS 7, para 31).
Interest or dividend received: Received = Income + Opening receivable − Closing receivable; Investing for an entity that is not a financial institution.
Dividend paid: Cash dividend = Dividend declared + Opening unpaid dividend − Closing unpaid dividend; Financing activity (Ind AS 7, para 31). Dividend tax or deduction at source is part of the cash paid.
Instalment with interest and loan: Instalment on deferred payment asset: loan part → investing; interest part → financing; AS 3 para 10: a single transaction may include differently classified cash flows.
Net change in cash: Net increase or decrease = Operating cash flow + Investing cash flow + Financing cash flow; This must equal closing cash and cash equivalents minus opening cash and cash equivalents.
Reconciliation: Opening cash and cash equivalents + Net change = Closing cash and cash equivalents; Always show this at the foot of the statement. It is your proof of accuracy.
Net profit before tax (NPBT): NPBT = Closing P&L balance − Opening P&L balance + Dividend and transfers to reserves + Tax charge for the year; Use this when the question gives only balance sheet balances. Add back any appropriations made out of profit.
Operating profit before working capital changes: NPBT + Depreciation + Finance costs + Loss on sale of assets − Profit on sale of assets − Interest and dividend income; Add non-cash charges and items shown in other sections. Remove non-operating gains.
Cash generated from operations: Operating profit before working capital changes − Increase in inventories and receivables + Increase in payables (reverse for decreases); Tax paid is deducted after this line to get net cash from operating activities.
Fixed asset purchases (net block): Purchases = Closing net block − Opening net block + Depreciation + Book value of assets sold; Book value of assets sold is the value at the date of sale. Sale proceeds = book value ± profit or loss.
Tax paid: Tax paid = Opening provision + Tax charge for the year − Closing provision; Use the same logic for any accrued item, such as outstanding expenses.
Tax paid (provision account): Tax paid = Opening provision for tax + Tax charged to P&L − Closing provision for tax; Use when the provision is a separate balance sheet item. Prepare it as a T-account to avoid errors.
Gain on sale of asset: Gain or loss = Sale proceeds − Book value (WDV) of asset sold; Deduct a gain from, or add a loss to, operating profit. Show the full sale proceeds under investing activities.
Book value of asset sold: WDV of asset sold = Opening WDV + Purchases − Depreciation − Closing WDV; Gives the book value of disposals when the purchase and depreciation are known. Use gross block and accumulated depreciation accounts if given.
Provisions: Add back the charge for provision to profit before tax, and treat the change in operating provisions as a working capital item as the question directs; A provision is non-cash when created. The cash effect appears when it is actually paid.
Non-cash transactions: Bonus shares, conversion of debt to equity, assets acquired for shares: exclude from cash flows and disclose; Only the cash part of a mixed transaction is shown.

Quick revision

Cash flows are classified into operating, investing and financing activities.
Operating activities are principal revenue-producing activities and other activities that are not investing or financing.
Financing activities change the size and composition of contributed equity and borrowings.
Indirect method starts with profit or loss and adjusts for non-cash items, working capital changes and investing or financing items.
Add back non-cash expenses such as depreciation and provisions; remove non-cash gains.
Increase in inventories or receivables lowers operating cash; increase in payables raises it.
Remove profit or loss on sale of assets from operating activities and show the sale proceeds under investing.
Investing and financing transactions that need no cash or cash equivalents are excluded and disclosed elsewhere.
Direct method shows gross cash receipts and payments; Ind AS 7 encourages it.
Under AS 3, one person, small and dormant companies may omit the cash flow statement.
Your statement must reconcile to the change in cash and cash equivalents.

Common mistakes

Treating every short-term investment as a cash equivalent. Fix: Apply all four parts of the test. The investment must be highly liquid, convertible to known amounts of cash and subject to only an insignificant risk of change in value.
Showing transfer from bank to a qualifying cash equivalent as an investing outflow. Fix: Movements between cash and cash equivalents are cash management and are excluded from cash flows.
Treating depreciation as an operating cash outflow. Fix: Depreciation is a non-cash charge. Add it back when moving from profit to operating cash flow. It is never shown as a cash flow itself.
Showing dividend paid under operating activities without stating the basis. Fix: Dividend paid is a payment to owners, so under AS 3 it is financing. Ind AS 7 allows operating or financing if applied consistently. Choose, state it and show the outflow there.
Starting from profit after tax and then also deducting tax paid. Fix: Start from profit before tax. Add back the provision for tax if only profit after tax is given. Deduct only the tax actually paid at the end.
Adding back depreciation but not removing interest income or dividend income. Fix: Go through the profit and loss statement line by line. Anything that belongs to investing or financing is removed from operating profit.
Showing only the net change in fixed assets as the purchase Fix: Rebuild the asset account fully: opening + purchases − cost of sales = closing, using gross cost, or adjust net block for depreciation and book value sold.
Putting profit on sale of an asset in investing instead of the sale proceeds Fix: Show the full sale proceeds in investing. Deduct the profit (or add the loss) in the operating adjustments.
Starting from net profit after tax instead of net profit before tax. Fix: Rebuild NPBT by adding back the tax charge, dividend and transfers to reserves. Show tax paid separately later.
Getting the sign wrong on working capital changes. Fix: Ask whether cash was tied up or released. A rise in inventories or receivables ties up cash (deduct). A rise in payables releases cash (add).

Exam tips

For definition questions, reproduce all conditions of cash equivalents. Missing one condition loses the mark.
In MCQs, watch for options that treat movements between cash and cash equivalents as cash flows. They are wrong.
Use a two-column layout for 'difference between' questions; it earns step marks.
Mention both AS 3 and Ind AS 7 when the question does not say which applies.
Link every benefit to a user decision such as liquidity, solvency or forecasting future cash flows.
Most MCQs on this topic test one item. Spot whether it is interest, dividend, tax or a non-cash item first, because these are the usual traps.
In written answers, state your treatment of interest and dividend in one line before the statement, noting whether you follow AS 3 or the Ind AS 7 choice. A clear, consistent assumption protects your step marks.
Use separate headings for the three activities and show a net total for each. Examiners look for the layout and for the final reconciliation with opening and closing cash.