## Cash Flow Statement — Direct Method
AS 3 requires the cash flow statement to classify cash flows under three sections. Under the direct method, actual gross cash receipts and gross cash payments are shown in each section.
### Three Sections
| Section | Nature | Typical Inflows | Typical Outflows |
|---|---|---|---|
| A — Operating | Core business transactions | Cash sales, cash from debtors | Payments to suppliers, wages, overheads, income tax |
| B — Investing | Long-term asset transactions | Sale of PPE, sale of investments | Purchase of PPE, purchase of investments |
| C — Financing | Capital structure changes | Share issue, loans raised | Loan/debenture repayment, dividend paid, interest paid |
### Format — Operating Activities (Direct Method)
```
Cash received from Trade Receivables X
Add: Cash Sales X
───
Total Cash Receipts from Customers X
Less: Cash paid to Trade Payables (X)
Less: Wages / Salaries (X)
Less: Office / Administrative Overheads (X)
Less: Selling & Distribution Expenses (X)
───
Cash Generated from Operations X
Less: Income Tax Paid (X)
───
Net Cash from Operating Activities (A) X
```
### Format — Investing Activities
```
Proceeds from sale of PPE / Investments X
Less: Purchase of PPE / Investments (X)
───
Net Cash from Investing Activities (B) (X)
```
### Format — Financing Activities
```
Proceeds from issue of shares X
Proceeds from loans raised X
Less: Repayment of loans / debentures (X)
Less: Dividend paid (X)
Less: Interest paid (X)
───
Net Cash from Financing Activities (C) X
```
### Reconciliation of Cash and Cash Equivalents (CCE)
```
Opening CCE + Net CF (A + B + C) = Closing CCE
```
Always verify this equation — it is a built-in accuracy check.
### Classification Rules (AS 3)
- Interest paid → Financing Activities (permitted alternative: Operating)
- Dividends paid → Financing Activities
- Income tax paid → Operating Activities (unless specifically identifiable with investing/financing)
- Use cash amounts only — not accrual amounts from the income statement