## Cash Flow Statement — Structure and Direct Method
Under AS 3, every Cash Flow Statement has exactly three sections:
| Section | What it captures |
|---|---|
| A — Operating Activities | Day-to-day business cash flows |
| B — Investing Activities | Long-term asset and investment transactions |
| C — Financing Activities | How the business is funded |
> Both Direct and Indirect methods produce identical Investing and Financing sections. Only Operating Activities differ between the two methods.
### Final Reconciliation
```
Opening Cash & Cash Equivalents (CCE)
+ Net Cash Flows during the year (A + B + C)
= Closing CCE ← must match B/S closing cash/bank balance
```
---
### A. Operating Activities — Direct Method
List actual cash receipts and payments from the core business:
| Item | Sign |
|---|---|
| Cash sales + Collections from trade receivables | + |
| Cash purchases + Payments to trade payables | − |
| Operating expenses paid (wages, rent, electricity, overheads) | − |
| Income tax paid | − |
| Extraordinary items (if any) | ± |
---
### B. Investing Activities
| Item | Sign |
|---|---|
| Purchase of PPE / intangibles / investments | − |
| Sale proceeds of PPE / investments | + |
| Interest received (gross, before TDS) | + |
| Dividend received | + |
| Rent income on investment property | + |
| Loans advanced to subsidiaries/others | − |
| Repayment received on loans given | + |
> Critical rule: Enter the actual cash received on sale — not the book value. Profit or loss on sale is a non-operating item; it is reversed in the Indirect Method's Operating section. The Investing section always shows sale proceeds.
---
### C. Financing Activities
| Item | Sign |
|---|---|
| Issue of equity / preference shares | + |
| Buyback / redemption of shares | − |
| Issue of debentures / loans taken | + |
| Redemption of debentures / loans repaid | − |
| Interest paid | − |
| Dividend paid | − |
---
### TDS on Interest — How to Handle
When interest received has TDS deducted:
- Investing Activities: Show gross interest (before TDS) as inflow.
- Operating Activities: The TDS amount is part of Income Tax Paid (deducted there).
Never show the TDS deduction within the Investing section itself.