Corporate Financial

Reporting
Muhammad Sarwar
Cash Basis of Accounting
Cash basis of accounting refers to a major accounting
method that recognizes revenues and expenses at the
time cash is received or paid out.
This contrasts accrual accounting which recognizes
income at the time the revenue is earned and records
expenses when liabilities are incurred regardless of
when cash is received or paid.
Cash Basis of Accounting
It measures the overall financial result for the period
as the difference between cash received and cash paid.
When the cash basis of accounting is adopted, only
one financial statement: the cash flow statement, is
presented.
This statement provides readers with information
about the sources of cash raised during the period,
The uses to which those funds were applied
The balances of cash and cash equivalents at the
reporting date.
Cash Basis of Accounting
The financial statement reporting model associated
with the cash basis of accounting is a cash flow
statement that reconciles opening and closing
balances of cash and cash equivalents
The cash flow statement is referred to by a variety of
names:
A commonly-used alternative name is the statement
of receipts and payments.
Cash Basis of Accounting
This Standard requires the provision of information
about the historical changes in cash and cash
equivalents of an entity by means of a cash flow
statement
Cash flow statement classifies cash flows during the
period in following categories:
Operating activities
Investing activities
Financing activities
Cash and Cash Equivalents
The cash basis of accounting, as defined by this
Standard, recognizes both cash and cash equivalents.
Cash includes cash on hand, cash on deposit and cash
in transit.
Cash equivalents include short-term investments in
marketable securities
Cash equivalents are held for the purpose of meeting
short-term cash commitments rather than for
investment or other purposes
Future Economic Benefits or Service
Potential
Assets, including cash and other resources, provide a
means for entities to achieve their objectives.
Assets that are used to deliver goods and services in
accordance with an entity’s objectives but which do
not directly generate net cash inflows are often
described as embodying “service potential”.
Assets that are used to generate net cash inflows are
often described as embodying “future economic
benefits”.
Components of the Financial Statement
A financial statement includes the following
components:
Cash flow statement
Accounting policies and explanatory notes
Benefits of Cash Flow Information
A cash flow statement provides a means by which an
entity can discharge its accountability for cash inflows
and cash outflows
The information in a cash flow statement provides
information useful in assessing an entity’s cash
resources
Assessing the level of cash resources required to
sustain an entity’s activities.
Benefits of Cash Flow Information
Historical cash flow information is often used as an
indicator of the amount, timing and certainty of future
cash flows.
It is also useful in checking the accuracy of past
assessments of future cash flows
Classification of Cash Flows
Cash Flow from Operating Activities
Cash Flow from Investing Activities
Cash Flow from Operating Activities