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BRILLIANT’S Cash Flow Statement 97

operating items are charged to profit and loss Am°naoqQ>J Am`Q>åg àm°{\$Q> Ed§ bm°g AH$mCÝQ> _| em{_b
account. Firms usually prepare income {H$`m OmVm h¡Ÿ& gm_mÝ`V: \$åg© BÝH$_ ñQ>oQ>_|Q> H$mo
statement on accrual basis, in accordance with
EH«w$Ab ~o{gg na V¡`ma H$aVr h¢ Omo GAAP Ho$ AZwê$n
GAAP. Revenue is recognized even though cash
hmoVr h¡Ÿ& Am` àmá Z hþB© hm| AWm©V² CYma {~H«$s H$s
is not received i.e. in respect of credit sales.
pñW{V _| ^r Bgo _mÝ`Vm Xr OmVr h¡Ÿ& Bgr àH$ma, ì``m|
Similarly, expenses are recognized and charged
to profit and loss account even though such H$s nhMmZ H$s OmVr h¡ Am¡a `{X BZH$m ^wJVmZ ~mH$s
expenses may be outstanding. Likewise, to hm| V~ ^r BÝh| àm°{\$Q> Ed§ bm°g AH$mCÝQ> _| gpå_{cV
arrive at net profit, non-cash expenses like {H$`m OmVm h¢Ÿ& Bgr Ho$ g_mZ ZoQ> àm°{\$Q> H$s JUZm Ho$
depreciation and certain write-offs like {cE Zm°Z-H¡$e Am`Q>åg O¡go S>o{à{gEeZ Am¡a Hw$N> [aQ>Z©
goodwill and preliminary expenses are also
Am°\$ O¡go JwS>{db Ed§ àma§{^H$ ì``m| H$mo ^r gpå_{cV
charged. Due to this, net profit is generally not
{H$`m OmVm h¡Ÿ& Bg H$maU go ZoQ> àm°{\$Q> gm_mÝ`V:
equal to cash generated from operation.
Am°naoeZ go àmá H¡$e Ho$ ~am~a Zht hmoVm h¡Ÿ& Bg{cE
Therefore, it is essential to convert the income
statement prepared on accrual basis to one on EH«w$Ab ~o{gg na V¡`ma BÝH$_ ñQ>oQ>_|Q> H$mo H¡$e ~o{gg
cash basis. na V¡`ma BÝH$_ ñQ>oQ>_|Q> _| ~XcZm Amdí`H$ h¡Ÿ&
There are two methods of reporting cash Am°naoqQ>J EpŠQ>{dQ>rO go H¡$e âbmo kmV H$aZo H$s
flows from operating activities: Direct Method Xmo _oWS²>g h¢: S>m`aoŠQ> _oWS> Am¡a BZS>m`aoŠQ> _oWS>&
and Indirect Method.

1. Direct Method 1. S>m`aoŠQ> _oWS>
The first method is the direct method S>m`aoŠQ> _oWS> Ho$ AÝVJ©V gH$c H¡$e [agrßQ>
whereby major classes of gross cash receipts Ed§ J«m°g H¡$e no_|Q²>g H$s _w»` _Xm| H$mo àH$Q> {H$`m
and gross cash payments are disclosed. Under
OmVm h¡Ÿ& Bg _oWS> _| Am°naoqQ>J aodoÝ`y go àmßV H¡$e
this method, cash inflows from operating
revenues and cash outflows for operating Ed§ Am°naoqQ>J EŠgn|gog hoVw MwH$mB© JB© H¡$e H$s VwcZm
expenses are calculated to arrive at cash flows H$aHo$ BZH$m A§Va kmV {H$`m OmVm h¡Ÿ& H¡$e [agrßQ>
from operating activities. The difference
Ed§ H¡$e no_|Q> Ho$ Bg A§Va H$mo hr ZoQ> H¡$e âbmo H$hm
between the cash receipts and cash payments
is the net cash inflow or outflow. Following are OmVm h¡Ÿ& Am°naoqQ>J EpŠQ>{dQ>rO go àmßV H¡$e H¡$e
some examples of cash receipts and cash no_|Q²>g ({Ogo H¡$e âbmo H$hm OmVm h¡) Ho$ CXmhaU
payments (known as cash flows), resulting
{ZåZ{c{IV h¢:
from operating activities:
(i) Cash receipts from the sale of goods and (i) JwS²>g Ho$ {dH«$` Ed§ g{d©g àXmZ H$aZo go H¡$e
rendering of services; [agrßQ²>g;
(ii) Cash receipts from royalties, fees, commi- (ii) am°`ëQ>rO,\$sg, H$_reZ Ed§ AÝ` aodoÝ`y go H¡$e
ssion and other revenue; [agrßQ²>g;
(iii) Cash payments to suppliers of goods and (iii) JwS²>g Ed§ g{d©gog Ho$ gßbm`g© H$mo H¡$e no_|Q>;
services;
(iv) Cash payments to and on behalf of emplo- (iv) H$_©Mm[a`m| H$mo Ed§ CZH$s Amoa go H¡$e no_|Q>;
yees;