In this topic
Learning outcomes
- Explain the relevant accounting rule and terminology.
- Prepare a correctly classified calculation or statement.
- Show working notes and verify the debit-credit or balance check.
Key vocabulary
Concepts to know
Principal revenue-producing activities and other activities not investing or financing.
Acquisition/disposal of long-term assets and investments not treated as cash equivalents.
Activities that change the size/composition of equity capital and borrowings.
Short-term, highly liquid investments readily convertible to known cash amounts and subject to insignificant risk of value change.
Core notes
Classification and format
Begin with operating activities, then investing and financing activities, and reconcile net change in cash/cash equivalents to opening and closing balances. Classify each transaction by its economic nature. Non-cash transactions are excluded from the statement and disclosed separately.
Under the indirect method, start with profit before tax and exceptional items as instructed. Adjust non-cash/non-operating items (e.g., depreciation added back; profit on sale deducted), then adjust changes in operating current assets and liabilities, and deduct tax paid to arrive at net cash from operating activities.
Core notes
Working-capital sign rules
Increase in operating current asset: subtract; decrease: add. Increase in operating current liability: add; decrease: subtract. These signs reflect cash tied up in or released from working capital. Do not include cash, cash equivalents, borrowings or dividends in this working-capital adjustment.
Investing commonly includes purchase/sale of fixed assets and investments. Financing commonly includes issue/buyback of shares and borrowing/repayment. Interest and dividends should be classified consistently with the prescribed AS 3 instructions and facts given.
Syllabus boundaries
Presentation rules to keep visible
The CBSE 2026–27 syllabus specifies AS 3 (Revised) and the indirect method. Start with profit before tax, reconcile non-cash and non-operating items, adjust operating working capital, and deduct tax paid to calculate operating cash flow. The syllabus specifically includes adjustments for depreciation and amortisation, profit or loss on sale of assets (including investments), dividends and tax.
A non-cash investing or financing transaction does not enter the cash-flow totals. Disclose it separately as required.
The syllabus treats these as short-term borrowings. Do not silently include them as cash equivalents in this statement.
Treat current investments as marketable securities unless the question specifies otherwise.
Give previous years’ proposed dividend the prescribed AS 4 treatment. A current-year proposed dividend is accounted for in the next year after shareholders declare it.
For interest and dividends, apply the AS 3 classification appropriate to the type of enterprise and keep the treatment consistent. Read each question’s dates and additional information before classifying a flow.
Worked example
Step-by-step illustration
Profit before tax ₹70,000; depreciation ₹12,000; profit on sale of machinery ₹4,000; inventory increases ₹8,000; receivables decrease ₹5,000; payables increase ₹6,000; tax paid ₹10,000.
Cash generated = 78,000 − 8,000 + 5,000 + 6,000 = ₹81,000
Net cash from operating activities after tax = 81,000 − 10,000 = ₹71,000
Board preparation
Original practice questions
- Classify proceeds from sale of machinery and issue of shares.
- Explain the signs for an increase in inventory and an increase in creditors.
- Identify how a non-cash purchase of equipment is presented and whether it changes the statement's cash total.
- Prepare an indirect-method cash flow using a profit reconciliation and working-capital changes.
Keep a three-column classification schedule before calculating. Reconcile opening cash + net change = closing cash and ensure non-cash transactions are not included as cash flows.
These are original practice questions, not claimed previous-year questions. Follow the exact method and rounding instructions in your prescribed text and school guidance.
Current syllabus
How this topic fits the course
Cash Flow Statement is part of the CBSE Class XII Accountancy course structure. Computerised Accounting is an alternative to Financial Statement Analysis, not an additional compulsory unit.
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