CS Executive · Corporate Accounting and Financial Management · Cash Flows
Under AS 3 Cash Flow Statements, how are 'cash flows' defined?
Cash flows are inflows and outflows of cash and cash equivalents. The definition covers both cash and its equivalents, so it is wider than cash on hand and is not limited to profit adjustments or working capital movements.
- AInflows and outflows of cash and cash equivalentsCorrect
- BNet profit adjusted for non-cash items and provisions only
- CReceipts and payments of cash on hand excluding bank balances
- DChanges in working capital between two balance sheet dates
Explanation
AS 3 defines cash flows as inflows and outflows of cash and cash equivalents. Option 2 describes only a step in the indirect method. Option 3 wrongly excludes demand deposits and cash equivalents, and option 4 describes working capital changes, not cash flows.
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