INTRODUCTION

Management accounting is defined as processes and techniques that are focused on

the effective use of organizational resources to support managers in their task of enhancing

both customer value and shareholder value. We outline the recent changes in the business

environment that have influenced the development of management practices and management

accounting systems, and management accounting is distinguished from financial accounting.

The processes and techniques of management accounting that are used to enhance value

include systems to support the formulation and implementation of strategy; process

improvement and cost management techniques to help develop and manage a firm’s

competitive advantage; planning and control systems to help managers manage resources;

and estimates of the cost of products and services to support strategic and operational

decisions.

IMPORTANCE OF FINANCIAL STATEMENTS

Requirement of lenders

Guides future course of action

To understand the future

To exercise control

Better awareness of present position

Arithmetic accuracy to future plans

TOOL OF ANALYSIS1. Vertical Form

2. Cash flow statement

3. Common size statements

4. Trend

5. Ratio

6. Fund Flow Statement

7. Comparative

1

What Is Cash Flow Statement?

Definition of 'Cash Flow'A summary of the actual or anticipated incomings and outgoings of cash in a firm over an

accounting period (month, quarter, year).

It answers the questions:

Where the money came (will come) from? 

Where it went (will go)? 

Cash flow statements and projections express a business's results or plans in terms of cash in and out

of the business, without adjusting for accrued revenues and expenses. The cash flow statement doesn't

show whether the business will be profitable, but it does show the cash position of the business at any

given point in time by measuring revenue against outlays.

IMPORTANCE OF CASH FLOW STATEMENT The cash flow statement provides information regarding inflows and outflows of cash of

a firm for a period of one year. Therefore cash flow statement is important on the

following grounds.

1.Cash flow statement helps to identify the sources from where cash inflows have arisen

within a particular period and also shows the various activities where in the cash was

utilized.

2. Cash flow statement is significant to management for proper cash planning and

maintaining a proper matching between cash inflows and outflows.

3. Cash flow statement shows efficiency of a firm in generating cash inflows from its

regular operations.

4.Cash flow statement reports the amount of cash used during the period in various

long-term investing activities, such as purchase of fixed assets.

5. Cash flow statement reports the amount of cash received during the period through

2

various financing activities, such as issue of shares, debentures and raising long-term

loan.

6. Cash flow statement helps for appraisal of various capital investment programmes to

determine their profitability and viability.

The cash flow statement organizes and reports the cash generated and used in the following

categories:

1. Cash Provided From or Used By Operating ActivitiesThis section of the cash flow statement reports the company's net income and then converts it

from the accrual basis to the cash basis by using the changes in the balances of current asset

and current liability accounts, such as:

Accounts Receivable

Inventory

Supplies

Prepaid Insurance

Other Current Assets

Notes Payble

Accounts Payable

Wages Payable

Payroll Taxes Payable

3

Interest Payable

Income Taxes Payable

Unearned Revenues

Other Current Liabilities

In addition to using the changes in current assets and current liabilities, the operating

activities section has adjustments for depreciation expense and for the gains and losses on the

sale of long-term assets.

2. Cash Provided From or Used By Investing ActivitiesThis section of the cash flow statement reports changes in the balances of long-term asset

accounts, such as:

Long-term Investments

Land

Buildings

Equipment

Furniture & Fixtures

Vehicles

In short, investing activities involve the purchase and/or sale of long-term investments and

property, plant, and equipment.

3. Cash Provided From or Used By Financing ActivitiesThis section of the cash flow statement reports changes in balances of the long-term liability

and stockholders' equity accounts, such as:

Notes Payable (generally due after one year)

Bonds Payable

Deferred Income Taxes

Preferred Stock

Paid-in Capital in Excess of Par-Preferred Stock

Common Stock

4

Paid-in Capital in Excess of Par-Common Stock

Paid-in Capital from Treasury Stock

Retained Earnings

Treasury Stock

In short, financing activities involve the issuance and/or the repurchase of a company's own

bonds or stock as well as short-term and long-term borrowings and repayments.

4. Supplemental InformationThis section of the cash flow statement discloses the amount of interest and income taxes

paid. Also reported are significant exchanges not involving cash. For example, the exchange

of company stock for company bonds would be reported in this section.

There are following two methods of cash flow statement:

Direct MethodWhen using the direct method, you list cash flows in the operations section of the cash flow

statement. Cash flows due to operations arise from customer collections and cash paid to

suppliers, employees and others. The section also reports cash paid for income tax and

interest. The problem in trying to use the direct method is that a company might not keep the

information in the required form. For example, companies using accrual accounting lump

together cash and credit sales -- they would have to make special provision to track cash sales

separately.

Indirect MethodIn the indirect method, you adjust net income to convert it from an accrual to a cash basis.

This requires you to add back non-cash expenses such as depreciation, amortization, loss

provision for accounts receivable and any losses on the sale of a fixed asset. You also adjust

net income for changes between the starting and ending account balances in current assets --

excluding cash -- and current liabilities for the period. These accounts include accounts

receivable, inventory, supplies, prepaid assets, payable liabilities and unearned revenues.

5

ConsiderationsThe indirect method uses readily available information and most companies find it easier to

employ. Management and shareholders might fret if a company consistently reports net

income exceeding cash flows -- they will want to identify the sources of non-cash income and

determine whether these are masking serious problems with the business. If you believe that

“cash is king,” you will look to the cash flow statement to measure the company’s liquidity --

the ability to pay bills and avoid defaulting on debt. Cash shortages can lead to bankruptcy,

whereas excess cash might indicate a need to take steps such as increasing investments,

paying down debt, increasing executive salaries or distributing dividends.

Requirement for preparation of cash flow statementThe management of cash flow is so important for businesses, most analysts recommend that

someone study a cash flow statement at least every quarter. The cash flow statement is a

financial report that will describe the sources of a company's cash and where it was spent

over a certain period of time.

IN THE BOOKS OF RELIANCE CO.BALANCE SHEET FOR TWO YEARS ENDING 2011-12 & 2012-13

  2011-2012 2012-2013

PARTICULARS AMT AMT AMT AMT AMT AMTSOURCES OF FUNDS                         OWNERS FUNDS                         Equity share capital   215.95     216.15               ADD:-            RESERVES AND SURPLUS   2417.3     3296.11               NET WORTH     2633.92     3512.93             APPLICATION OF FUNDS                         

6

FIXED ASSETS            

GROSS BLOCK3579.62     3574.62    

LESS:-Depraciation2169.16     1416.88    

             NET FIXED ASSETS     2169.16     2157.74             INVESTMENTS     1260.68     2438.21             WORKING CAPITAL            A. CURRENT ASSETS            QUICK ASSETS                         cash and Bank Balance 1358.1     1319.99    Debtors 943.2     678.99                 TOTAL QUISK ASSETS   2301.3     1998.98               NON-QUICK ASSETS                         Inventories 2811.2     2516.65    

Loans and advances1099.72     1314.72    

             TOTAL NON-QUICK ASSET  

3910.92     3831.37  

             B.CURRENT LIABILITIES       5688.44                 QUICK LIABLITIES                         

Provisions1324.98     1945.92    

             TOTAL CURRENT LIABILITIES  

7589.19     7634.36  

             NET CURRENT ASSETS     1095     1293.96             TOTAL FUNDS EMPLOYED     2633.92     3512.93

IN THE BOOKS OF RELIANCE CO.

7

CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MAR. 2013

PARTICULARS AMT AMT AMT

CASH FLOW FROM OPERATING ACTIVITIES

NET PROFIT 301.81

ADJUST NON CASH AND NON-OPERATING ITEM

Depreciation and Amortisation1817.62

Lease equalisation adjusted income -4.52loss/profit on sale of assets -2.96Profit on sale of investment -43.91Profit on sale of a division -82.25Provision for loan given 245Provision for intercorporate deposit 5.29Income tax -126.88Dividend -656.52

Exchange difference 199.3913456.51

OPERATING PROFIT BEFORE CAPITAL CHANGES 1648.32

ADJUST WORKING CAPITAL CHANGES

Decrease in inventories 129.42Decrease in finance receivables 890.28Increase in other current assets 64.76incresae in trade payables -138.3Increase in other current liabilities -249.93Decrease in provisions -381.5

188.06 502.79

CASH GENERATED FROM OPERATIONS 2151.11

Income tax paid -107.33

NET CASH FROM OPERATING2258.44

8

CASH FLOW FROM INVESTING ACTIVITIES

Payment of fixed assets -2605.33Sale of fixed assets 16.95Sale of division 110Loans to associates 194.36Advance towards investment in subsidiaries -16.82Investment in subsidiary company -186.12Investment in associate company -0.01Investment in others -0.84Investment in mutual funds -315.51Decrease in investment 0.61Redemption of investment in subsidiary company 1378.95pRedemption in investment in associate company 1Deposits of margin money 75Realisation of margin money 0.53Fixed deposit with scheduled bank -1.38

NET CASH FROM INVESTING ACTIVITIES 991.5

CASH FLOW FOR FINANCING ACTIVITIES

Premium on redemption -886.95Brokerage on debentures -93.02Premium paid on debentures -96.55Issue of shares 0.16Repayment of fixed assets -1868.38Proceeds from long term borrowing 2562.84Repayment of long term borrowing -3777.47

NET CASH USED IN FINANCIAL ACTIVITIES

-1809.42

NET INCREASE IN CASH AND CASH EQUIVALENT -735.75

CASH AND CASH EQUIVALENT AT BEGINNING1001.32

CASH AND CASH EQUIVALENT AT END -265.57

9

COMMENTS:-

After completing the above cash flow statement it is observed that the position of cash flow

statement is deteriorating day by day .there are many factors which is responsible for this.

Following are the reasons :-

Cash flow from operating is showing outflow of 2258.44

High investment in fixed assets reject outflow of 991.50

Even though company suffered loss cash flow from financing is showing flow of

(1809.42)

SUGGESTIONS:-The company should curtail investment in investing activity and repay to creditors after

liquidity

10