## Cash Flow Statement for Sole Proprietor / Partnership Firms
While the structure of the Cash Flow Statement is the same (Operating / Investing / Financing), non-corporate entities differ from companies in several important ways.
### Key Differences
| Feature | Company | Sole Proprietor / Partnership |
|---|---|---|
| Starting figure (Indirect) | PBT | Net Profit (before drawings) |
| Income tax | Separate liability; shown as tax paid | Personal tax of owner — usually not in firm's CFS |
| Dividends | Financing outflow | Not applicable |
| Drawings | Not applicable | Financing outflow — treated like dividends |
| Capital infusion by owner | Financing inflow | Financing inflow |
| Loans from partners/proprietor's family | Financing activity | Financing activity |
### Identifying Net Profit from Capital Account
When net profit is not directly given, reconstruct the Capital Account:
```
Proprietor's Capital Account
Drawings ××× | Opening Capital ×××
Closing Capital ××× | Net Profit ××× ← balancing
```
Formula: Net Profit = Closing Capital + Drawings − Opening Capital
This net profit is the starting point for the indirect method.
### Drawings — treatment
Drawings are placed under Financing Activities as an outflow. The logic mirrors dividend payments: both represent distribution of business resources to the owner.
### Loans from family members of proprietor
Loans taken from or repaid to the proprietor's spouse, relatives, or partners are Financing Activities — they affect the borrowing structure of the business.
### Net Block / Fixed Asset reconstruction
When both gross block and depreciation are not given separately, use the Net Block ledger:
```
Net Block Ledger
Opening Net Block ××× | Depreciation for year ×××
Additions (CIB) ××× | Book value of disposed ×××
| Closing Net Block ×××
```
Book value of disposed asset is needed to compute profit/loss on sale:
- Loss on sale = Book Value − Sale Proceeds
- Profit on sale = Sale Proceeds − Book Value