A STUDY ON COMPARATIVE STUDY OF DIRECT AND INDIRECT METHODS IN CASH FLOW STATEMENT PREPARATION IMPLICATIONS FOR FINANCIAL REPORTING WITH REFERENCE TO KOTAK MAHINDRA

The cash flow statement (CFS) is an essential component of a company's financial reporting that has been required since 1987. It details the inflow and outflow of cash and cash equivalents, complementing the income statement and balance sheet. Investors may get insight into a company's operational efficiency, revenue generation, and expenditure patterns with the help of the CFS. This section will teach you the ins and outs of the CFS and how to use it into your business analysis. What the CFS Is Made Of Cash flow statements differ from income and balance sheets in that they do not include the amount of future cash inflows and outflows that have been recorded on credit. Sales reported on both the income and balance sheets, whether in cash or on credit, make up net income, which is distinct from cash. (If you want to know what caused the credit crisis, read The three main ways in which money comes into and goes out of a business—core operations, investments, and financing—make up its cash flow. Business processes The operations component of cash flow measures the cash inflows and outflows created by a company's primary business activities. It indicates the amount of cash earned by a company's goods or services. Cash from operations often reflects changes in cash, receivables, depreciation, inventories, and payables. To get at cash flow, you have to make a few changes to net income. You may do this by adding or taking away variations in revenue, costs, and credit transactions (which show up on the income statement and balance sheet) that happen from one period to the next. These changes are necessary because the income statement and the balance sheet both include non-cash items in their calculations of net income and total assets and liabilities. Therefore, many things need to be reevaluated in order to calculate cash flow from operations, as not all transactions involve real cash. Every time an accounting period ends and a new one begins, cash flow should reflect any changes to accounts receivable on the balance sheet. When AR goes down, it means more money is coming into the business as a result of consumers paying off their credit accounts. To calculate net sales, add the amount by which AR has gone down. Although the sums reflected in accounts receivable are revenue, they are not cash, thus if there is an increase from one accounting period to the next, the amount of that increase must be subtracted from net sales. The converse is also true: when a company's inventory grows, it means they've expanded their spending on raw materials. The rise in the value of inventory is subtracted from net sales if the payment for the inventory was made in cash. Sales after deducting inventory would equal net sales. A rise in accounts payable would show up on the balance sheet if inventory was bought on credit, and the amountof the increase from one year to the next would be added to net sales.