# Cash Flow Statement — Direct Method Format
## A. Cash Flow from Operating Activities (Direct Method)
Under the Direct Method, show each major class of gross cash receipt and payment:
| Item | Effect |
|---|
| Cash sales | + |
| Collections from trade receivables | + |
| Cash received from services rendered | + |
| Cash purchases | − |
| Payments to trade payables | − |
| Payments for operating expenses (wages, salaries, rent, electricity, overheads) | − |
| Payment of income tax | − |
| Sub-total: before extraordinary items | |
| ± Extraordinary items (shown separately) | ± |
| Net Cash from Operating Activities (A) | |
## B. Cash Flow from Investing Activities
(Same format regardless of which method is used for Operating.)
| Item | Effect |
|---|
| Purchase of PPE | − |
| Sale of PPE — use actual sale proceeds, not book value | + |
| Purchase of investments | − |
| Sale of investments — use actual sale proceeds | + |
| Interest received | + |
| Dividend received | + |
| Rent income from investment property | + |
| Loan given (outflow) / Loan repayment received (inflow) | ± |
| Sub-total: before extraordinary items | |
| ± Extraordinary items | ± |
| Net Cash from Investing Activities (B) | |
## C. Cash Flow from Financing Activities
| Item | Effect |
|---|
| Issue of equity shares | + |
| Buyback of equity shares | − |
| Issue of preference shares | + |
| Redemption of preference shares | − |
| Issue of debentures | + |
| Redemption of debentures | − |
| Loans taken | + |
| Loans repaid | − |
| Interest paid | − |
| Dividends paid | − |
| Net Cash from Financing Activities (C) | |
## Closing Reconciliation
```
Opening CCE + Net (A + B + C) = Closing CCE
```
Closing CCE must match Cash and Bank balance in the Balance Sheet.
## Critical Rule — Sale of Assets
Always report actual sale proceeds in Investing Activities:
```
Sold at profit: Proceeds = Book Value + Profit
Sold at loss: Proceeds = Book Value − Loss
```
Never record profit/loss separately in the Investing section. Under the Indirect Method, these are adjusted out of PBT in the Operating section.
### Example 1
## Special Items in Investing Activities (Illustration 5 — Conceptual)
This illustration demonstrates the treatment of five non-standard investing items.
### 1. Loan Given to Subsidiary Company
This is a capital deployment transaction (not operating).
→ Cash outflow under Investing Activities.
If the subsidiary repays the loan later, the repayment receipt is an investing inflow.
### 2. Interest Received on Loan to Subsidiary
Return on an investing asset.
→ Cash inflow under Investing Activities (same section as the loan itself).
### 3. Pre-Acquisition Dividend Received
Dividend received from an investee company before the date of investment (i.e., out of pre-existing profits).
→ Treated as a recovery of investment cost in accounting, but for cash flow purposes, the cash received is shown as an inflow under Investing Activities.
### 4. Interest Received on Investments — TDS Treatment
The company earns gross interest but the payer deducts TDS before remitting.
Option A (Gross presentation):
```
Interest received (gross) +xxx
TDS on above interest −xxx ← shown as tax paid
```
Option B (Net presentation — simpler):
```
Interest received (net of TDS) +xxx
```
The net amount is the actual cash that entered the bank account.
### 5. Sale of Plant at a Loss
```
Book Value of Plant xx
Less: Loss on sale (xx)
= Sale Proceeds (actual cash received) xx ← use this figure in Investing
```
The loss is a non-operating expense → reversed (added back) in the Operating section under the Indirect Method. Do not record it again in Investing.
### 6. Extraordinary Item — Insurance Claim Received
If a claim related to loss of a fixed asset is received:
→ Show as an extraordinary item separately within Investing Activities:
```
Cash from Investing before extraordinary items xxx
± Extraordinary item (insurance claim received) ±xxx
─────────────────────────────────────────────────────
Net Cash from Investing Activities xxx
```