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 firms 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 ANALYSIS
1. Vertical Form 2. Cash flow statement 3. Common size statements 4. Trend 5. Ratio 6. Fund Flow Statement 7. Comparative

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
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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 Activities

This 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
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Payroll Taxes Payable 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 Activities

This 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 Activities

This 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
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Paid-in Capital in Excess of Par-Preferred Stock Common Stock 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 Information
This 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 Method
When 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 Method
In 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 -5

excluding cash -- and current liabilities for the period. These accounts include accounts receivable, inventory, supplies, prepaid assets, payable liabilities and unearned revenues.

Considerations
The 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 companys 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 statement

The 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 PARTICULARS SOURCES OF FUNDS OWNERS FUNDS Equity share capital ADD:RESERVES AND SURPLUS NET WORTH 215.95 216.15 AMT AMT AMT AMT 2012-2013 AMT AMT

2417.3 2633.92

3296.11 3512.93

APPLICATION OF FUNDS FIXED ASSETS GROSS BLOCK LESS:-Depraciation NET FIXED ASSETS INVESTMENTS WORKING CAPITAL A. CURRENT ASSETS QUICK ASSETS cash and Bank Balance Debtors TOTAL QUISK ASSETS NON-QUICK ASSETS Inventories Loans and advances TOTAL NON-QUICK ASSET B.CURRENT LIABILITIES QUICK LIABLITIES Provisions TOTAL CURRENT LIABILITIES NET CURRENT ASSETS TOTAL FUNDS EMPLOYED 1324.98 1945.92 2811.2 1099.72 2516.65 1314.72 1358.1 943.2 2301.3 1319.99 678.99 1998.98

3579.62 2169.16 2169.16 1260.68

3574.62 1416.88 2157.74 2438.21

3910.92

3831.37

5688.44

7589.19 1095

7634.36 1293.96

2633.92

3512.93

IN THE BOOKS OF RELIANCE CO. CASH FLOW STATEMENT FOR THE YEAR ENDED 31ST MAR. 2013
PARTICULARS CASH FLOW FROM OPERATING ACTIVITIES NET PROFIT ADJUST NON CASH AND NON-OPERATING ITEM Depreciation and Amortisation Lease equalisation adjusted income loss/profit on sale of assets Profit on sale of investment Profit on sale of a division Provision for loan given Provision for intercorporate deposit Income tax Dividend Exchange difference OPERATING CHANGES PROFIT BEFORE CAPITAL 1648.32 1817.62 -4.52 -2.96 -43.91 -82.25 245 5.29 -126.88 -656.52 199.39 13456.51 301.81 AMT AMT AMT

ADJUST WORKING CAPITAL CHANGES Decrease in inventories Decrease in finance receivables Increase in other current assets incresae in trade payables Increase in other current liabilities Decrease in provisions 129.42 890.28 64.76 -138.3 -249.93 -381.5 188.06

502.79 2151.11 -107.33 2258.44

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CASH GENERATED FROM OPERATIONS Income tax paid NET CASH FROM OPERATING

CASH FLOW FROM INVESTING ACTIVITIES Payment of fixed assets Sale of fixed assets Sale of division Loans to associates Advance towards investment in subsidiaries Investment in subsidiary company Investment in associate company Investment in others Investment in mutual funds Decrease in investment Redemption of investment in subsidiary company pRedemption in investment in associate company Deposits of margin money Realisation of margin money Fixed deposit with scheduled bank NET CASH FROM INVESTING ACTIVITIES CASH FLOW FOR FINANCING ACTIVITIES Premium on redemption Brokerage on debentures Premium paid on debentures Issue of shares Repayment of fixed assets Proceeds from long term borrowing Repayment of long term borrowing -886.95 -93.02 -96.55 0.16 -1868.38 2562.84 -3777.47 1809.42 -2605.33 16.95 110 194.36 -16.82 -186.12 -0.01 -0.84 -315.51 0.61 1378.95 1 75 0.53 -1.38 991.5

NET CASH USED IN FINANCIAL ACTIVITIES NET INCREASE EQUIVALENT IN CASH AND CASH

-735.75 1001.32 -265.57

CASH AND CASH EQUIVALENT AT BEGINNING CASH AND CASH EQUIVALENT AT END

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

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