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MAY 2009
Ql) a) Define the term Entrepreneur & Intrapreneur, explain the attributes of a
successful entrepreneur?
[15]
b) Illustrate the role of entrepreneurship in Indian Economy.
[10]
Q2) Write an essay on the role played by DIC & SISI for the development of
entrepreneurship?
[15]
Q3) What do you mean by term business idea, explain the Government procedure
involved in it?
[15]
Q4) Explain the role of Central Government & State Government in promoting
Entrepreneurship in India?
[15]
Q5) Explain the prospects of women entrepreneurship in India?

[15]

Q6) Why do entrepr~neurs fail in their venture, according to Peter Drucker?
Q7) Short notes (attempt any 2)
a) Entrepreneurial culture.
b) lOBI & ICICI's role.
c) Fiscal & Tax concession.
d) National Entrepreneurship Development Board.

[15)

MAY 2008 NEW
Instructions to the candidates:
1) Q 1 is compulsory.
2) Solve any 3 out of the remaining.
3) Figures to the right indicate full marks.
Ql) a) Elaborate the evolution of the concept of entrepreneur. [10]
b) How does entrepreneurial culture affect entrepreneurship.
[15]
Q2) What do you mean by business planning process? Explain its steps. [15]
Q3) Write an essay on the role played by IUBI & ICICI to promote
entrepreneurship development.
Q4) Explain the significant role played by EDll & NEDB.

[15]
[15]

Q5) What are the major pitfalls by peter Druckes?

[15]

Q6) Elaborate the reasons for low women entrepreneurs in Indian contest. [15]
Q7) Write short notes on (Any 2):
a) Employment development.
b) Environmental Analysis.
c) Fiscal & Tax concessions.
d) Problems of women entrepreneurs.

[15)

[15]

MAY 2008 OLD
Instructions to the candidates:
1) Q. No. 1 is compulsory.
2) Solve ANY THREE questions out of the remaining.
3) Figures to the right indicate full marks.
Q1) a) Discuss the role of the Government both at the Central and State level in
motivating and developing entrepreneurship in India.
b) “Developing countries like India need imitative entrepreneurs rather

than innovative entrepreneurs”. Do you agree? Justify your answer with
examples.
[15]
Q2) What are the reasons of very few women becoming entrepreneurs in a developing country like
India? Whether Indian women entrepreneurs have now made an impact and shown that they too can
contribute in economic development of the country? Discuss with examples. [15]
Q3) Answer ANY THREE.
[15]
a) Characteristics of a successful entrepreneur.
b) Explain the concept of risk. How it is related to entrepreneurial
functions?
c) Write a note on organizations that promote women entrepreneurship in
India.
d) Distinguish between’ Entrepreneur’ and’ Intrapreneur’ .
e) Briefly mention what are the ‘Objectives’ and ‘Functions’ off DBI.
Q4) Explain the concept Business Environment and discuss how to scan the environment and identify
Business Opportunities. Illustrate your answer with reference to ‘Travel and Tourism OR Event
Management Venture of your choice.
[15]
Q5) Write explanatory notes on the following.
a) Entrepreneurial Culture.
Or
[15]
Four Entrepreneurial Pit-Falls
b) Pro.ject Appraisal ,
or
Venture Capital Funding
Q6) Explain the role of SIDBI and District Industries Centres (DICs) in
entrepreneurship development.
[15]
Q 7) Mr. Rahul a fresh graduate in food technology has developed a novel food product; viz. Coconut
Water Composite [CWC] based o.n the indigenously developed technology. The product has been
tested by the government food testing laboratory and certified fo.r human consumption. CWC is very
tastey and energetic. It do.es not contain any preservatives and does not deplete underground water
reservoirs.
Mr. Rahul plans to. introduce this novel product as a challenger substitute to. ‘Pepsi and Coca Cola’
cold-drinks. Prepare a comprehensive advertising and marketing plan fo.r launch of this product
nationwide. State your
assumptions clearly.
[15]
DEC 2008
Instructions to the candidates:
1) Q. No.1 is compulsory.
2) Solve any three out of the remaining.
3) Figures to the right indicate full marks.
What are the qualities required by an entrepreneur?
How can the problems & opportunities in a business be identified?

[10]
[15]

Q. 2) Discuss the nature, scope & importance of banks in the entrepreneurial
development of the country.
[15]
Q. 3) Elaborate the role of state Government in providing incentives, subsidies,
grants & tax concessions to the entrepreneurs & new ventures.
[15]
Q. 4) What measures do you suggest to promote women entrepreneurship?
[15]
Q. 5) Explain the role of ICICI in promoting entrepreneurship development. [15]

Q. 6) “Developing countries need initiatives rather than innovative
entrepreneurs”. Comment.
[15]
Q7) Write short notes on (Any Three):
SFC
Entrepreneurial Culture.
Reasons for low women entrepreneurs.
Push factors & Pull factors.
Entrepreneur.

[15]

OCT 2007
Illstructiolls to tlte calldidates:
1) Q. No. I is compulsory.
2] Solve allY 3 out of tile remaining
3] Figures to the right indicate full marks.
Ql) a)Define the term entrepreneur. What are the attributes of an entrepreneur? . [10]
b)Explain the role played by an entrepreneur in Indian economy.’ [15]
Q2) Define business idea. Elaborate the problems & opportunities for an
entrepreneur.
[15]
Q3) Explain the entrepreneurial pit falls according to Peter. Drucker.

[15]

Q4) “It is remarked.that entrepreneurship is more suitable for young & unmarried
‘women”- Do you agree? Justify.
[15]
Q5) What is the role played by Central & State Government to promote
[15]

entrepreneurship?

Q6) Elaborate the schemes offered by Commercial banks for development of
[15]
Q1) Write short notes on (Any two):
a) Entrepreneur V s Entrepreneurship.
b) NIESBUD.
c) Export oriented units.
d) Reasons for low women entrepreneurship.

entrepreneurship.
[15]

MAY 2007
Q.1 a) Define entrepreneur & entrepreneurship. What are the qualities required for becoming an
entrepreneur?
[15]
b) Explain the role played by an entrepreneur in Indian economy.

[10]

Q.2 What are the problems & prospects for women entrepreneur in India? 15]

Q.3 “It is remarked that entrepreneurial culture has olt of impact on entrepreneurs”. Do you agree?
Justify.
[15]

Q.4

Elaborate business planning process, in detail.

[15]

Q.5 Explain the significant role played by DIC & SISI for the development of entrepreneurship.
[15]

Q.6

Elaborate the role played by various financial institutions in Indian context.

[15]
Q.7 Write short notes on (any 2)

a)

Entrepreneurial pitfalls.

b)

Reason for low women entrepreneurs.

c)

Entrepreneur Vs Manager

d)

NIESBUD

MAY 2006
1) Discuss the “Culture of Entrepreneurship” and its role in economic development of a nation. What
factors contribute to nurturing such a culture?
2) A) discuss the role of women in entrepreneurship and attributes of a woman entrepreneur
B) What are the problems faced by women entrepreneurs in India? What measure would you suggest to
overcome these?
3) The phenomenon of Liberalization, privatization and globalization has created a favorable
environment of entrepreneurship in India. Critically examine the above statement and suggest how the
youngsters can make the best use of this.
4) A) Describe the contents of a typical E.D.P(Entrepreneurship Development Programmed) and its
conduct.
B) Entrepreneurs are born and not trained comment on above with the reference to .E.D.P.’s
5) Write short notes on any three
A) Social factors affecting entrepreneurship
b) SIDBI
c) Project planning
d) Sickness of S.S.I Units in India.
e) Role of educational institutes in promoting entrepreneurship
5) India is mainly an agrarian country, and its major G.D.P.is the formers. Recent times have seen a
spate of suicides by many former due to failure of crops, and many other dreasons as debts etc has
come to take a serious view of this important activity which being neglected and relegated to other
more lucrative industrial . Small agricultural activity hence needs to be viewed as an “Entrepreneur
venture” and the small farmer as an ‘agricultural entrepreneur’
Keeping this conceptual theme in mind answer the following requirement.
a) how can agriculture be viewed as an entrepreneurial venture? Attributes are necessary in a small
scale farmer entrepreneur?
b)
In order to remove complete dependence on crops alone a activities need to be augmented b the
other supplementary activites. What activities would you propose which will help farmer survive the
loss of crops?
c)
Design a short Entrepreneurship development programme for farmer.
OCT 2005

Que 1) Define ‘ Entrepreneur’ and discuss the essential attributes of an Entreprenur, with suitable
examples.
Que 2) Illustrate the role of financial institutions in promoting entrepreneurship development in India,
with special emphasis on their liberalized schemes of assistance for working capital and long term,
loans.
Que 3) Define environment and discuss the impact of the liberalization, privatization and globalization
measures on entrepreneurship development in India.
Que 4) Discuss the role and importance of the following institutions in promoting, training and
developing entrepreneurs in India:
a) EDII.
b) NIESBUD
c) IEDs / CEDs.
Que 5) Discuss the problems and prospects of women Entrepreneurs in India. Do you consider women
to be better entrepreneurs than men? If yes why? If no why ?
Que 6) Write short notes.
a) Special credit facilities by banks for entrepreneurs.
b) Four entrepreneurial pitfalls.
c) SISI
d) Entrepreneur Vs Manager.
MAY 2005
1) Attempt any four questions.
2) All questions carry equal marks.
Q1) What is entrepreneurship. What is the role of entrepreneur in Indian economy. Give some reasons
why an individual entrepreneur might succeed in bringing a product to the market where the
government or a large corporation might fail.
Q2) Compare and contrast between Entrepreneur Vs. Intrapreneur, Entrepreneur Vs. Manager. Discuss
business pressures that have led to increasing emphasis on intrapreneurship. Explain why traditional
corporate management has not beenconducive to intrapreneurship.
Q3) What factors present in our society could account for the differences between male and female
entrepreneurs today. What changes do you foresee in this pattern 10 years down the line.
Q4) How does Environmental Analysis help in search and scanning for business ideas. How would you
go about monitoring and evaluating the new products being offered by existing companies? Is this a
viable technique of generating new ideas. Why or why not.
Q5) Discuss the fundamentals of a good feasibility plan. Explain the major components of a feasibility
plan. Cite suitable examples.
Q6) what is the role of central government and state government agencies in promoting
entrepreneurship.
Q7) write short notes on any 3
1.
2.
3.
4.
5.

Entrepreneurial culture
Venture capital funding
Four Entrepreneurial pitfalls
NIESBUD
District Industries centers

Trading Account
As already discussed, first section of trading and profit and loss account is called
trading account. The aim of preparing trading account is to find out gross profit or
gross loss while that of second section is to find out net profit or net loss.
Preparation of Trading Account
Trading account is prepared mainly to know the profitability of the goods bought (or
manufactured) sold by the businessman. The difference between selling price and cost
of goods sold is the,5 earning of the businessman. Thus in order to calculate the gross
earning, it is necessary to know:
(a) cost of goods sold.
(b) sales.
Total sales can be ascertained from the sales ledger. The cost of goods sold is,
however, calculated. n order to calculate the cost of sales it is necessary to know its
meaning. The 'cost of goods' includes the purchase price of the goods plus expenses
relating to purchase of goods and brining the goods to the place of business. In order
to calculate the cost of goods " we should deduct from the total cost of goods
purchased the cost of goods in hand. We can study this phenomenon with the help of
following formula:
Opening stock + cost of purchases - closing stock = cost of sales
As already discussed that the purpose of preparing trading account is to calculate the
gross profit of the business. It can be described as excess of amount of 'Sales' over
'Cost of Sales'. This definition can be explained in terms of following equation:
Gross Profit = Sales-Cost of goods sold or (Sales + Closing Stock) -(Stock in the
beginning + Purchases + Direct Expenses)
The opening stock and purchases along with buying and bringing expenses (direct
exp.) are recorded the debit side whereas sales and closing stock is recorded on the
credit side. If credit side is Jeater than the debit side the difference is written on the
debit side as gross profit which is ultimately recorded on the credit side of profit and
loss account. When the debit side exceeds the credit side, the difference is gross loss
which is recorded at credit side and ultimately shown on the debit side of profit & loss
account.
Usual Items in a Trading Account:
A) Debit Side
1. Opening Stock. It is the stock which remained unsold at the end of previous year. It
must have been brought into books with the help of opening entry; so it always
appears inside the trial balance. Generally, it is shown as first item at the debit side of

trading account. Of course, in the first year of a business there will be no opening
stock.
2. Purchases. It is normally second item on the debit side of trading account.
'Purchases' mean total purchases i.e. cash plus credit purchases. Any return outwards
(purchases return) should be deducted out of purchases to find out the net purchases.
Sometimes goods are received before the relevant invoice from the supplier. In such a
situation, on the date of preparing final accounts an entry should be passed to debit the
purchases account and to credit the suppliers' account with the cost of goods.
3. Buying Expenses. All expenses relating to purchase of goods are also debited in the
trading account. These include-wages, carriage inwards freight, duty, clearing charges,
dock charges, excise duty, octroi and import duty etc.
4. Manufacturing Expenses. Such expenses are incurred by businessmen to
manufacture or to render the goods in saleable condition viz., motive power, gas fuel,
stores, royalties, factory expenses, foreman and supervisor's salary etc.
Though manufacturing expenses are strictly to be taken in the manufacturing account
since we are preparing only trading account, expenses of this type may also be
included in the trading account.
(B) Credit Side
1. Sales. Sales mean total sales i.e. cash plus credit sales. If there are any sales returns,
these should be deducted from sales. So net sales are credited to trading account. If an
asset of the firm has been sold, it should not be included in the sales.
2. Closing Stock. It is the value of stock lying unsold in the godown or shop on the
last date of accounting period. Normally closing stock is given outside the trial
balance in that case it is shown on the credit side of trading account. But if it is given
inside the trial balance, it is not to be shown on the credit side of trading account but
appears only in the balance sheet as asset. Closing stock should be valued at cost or
market price whichever is less.
Valuation of Closing Stock
The ascertain the value of closing stock it is necessary to make a complete inventory
or list of all the items in the god own together with quantities. On the basis of physical
observation the stock lists are prepared and the value of total stock is calculated on the
basis of unit value. Thus, it is clear that stock-taking entails (i) inventorying, (ii)
pricing. Each item is priced at cost, unless the market price is lower. Pricing an
inventory at cost is easy if cost remains fixed. But prices remain fluctuating; so the
valuation of stock is done on the basis of one of many valuation methods.
The preparation of trading account helps the trade to know the relationship between
the costs be incurred and the revenues earned and the level of efficiency with which
operations have been conducted. The ratio of gross profit to sales is very significant: it
is arrived at :

Gross Profit X 100 / Sales
With the help of G.P. ratio he can ascertain as to how efficiently he is running the
business higher the ratio, better will be the efficiency.
Closing Entries pertaining to trading Account
For transferring various accounts relating to goods and buying expenses, following
closing entries recorded:
(i) For opening Stock: Debit trading account and credit stock account
(ii) For purchases: Debit trading account and credit purchases account, the amount
being the et amount after deducting purchases returns.
(iii) For purchases returns: Debit purchases return account and credit purchases
account.
(iv) For returns inwards: Debit sales account and credit sales return account
(v) For direct expenses: Debit trading account and credit direct expenses accounts
individually.
(vi) For sales: Debit sales account and credit trading account. We will find that all the
accounts as mentioned above will be closed with the exception of trading account
(vii) For closing stock: Debit closing stock account and credit trading account After
recording above entries the trading account will be balanced and difference of two
sides ascertained. If credit side is more the result is gross profit for which following
entry is recorded.
(viii) For gross profit: Debit trading account and credit profit and loss account If the
result is gross loss the above entry is reversed.
Profit and Loss Account
The profit and loss account is opened by recording the gross profit (on credit side) or
gross loss (debit side).
For earning net profit a businessman has to incur many more expenses in addition to
the direct expenses. Those expenses are deducted from profit (or added to gross loss),
the resultant figure will be net profit or net loss.
The expenses which are recorded in profit and loss account are ailed 'indirect
expenses'. These be classified as follows:
Selling and distribution expenses.
These comprise of following expenses:

(a) Salesmen's salary and commission
(b) Commission to agents
(c) Freight & carriage on sales
(d) Sales tax
(e) Bad debts
(f) Advertising
(g) Packing expenses
(h) Export duty
Administrative Expenses.
These include:
(a) Office salaries & wages
(b) Insurance
(c) Legal expenses
(d) Trade expenses
(e) Rates & taxes
(f) Audit fees
(g) Insurance
(h) Rent
(i) Printing and stationery
(j) Postage and telegrams
(k) Bank charges
Financial Expenses
These comprise:
(a) Discount allowed
(b) Interest on Capital

(c) Interest on loan
(d) Discount Charges on bill discounted
Maintenance, depreciations and Provisions etc.
These include following expenses
(a) Repairs
(b) Depreciation on assets
(c) Provision or reserve for doubtful debts
(d) Reserve for discount on debtors.
Along with above indirect expenses the debit side of profit and loss account
comprises of various business losses also.
On the credit side of profit and loss account the items recorded are:
(a) Discount received
(b) Commission received
(c) Rent received
(d) Interest received
(e) Income from investments
(f) Profit on sale of assets
(g) Bad debts recovered
(h) Dividend received
(i) Apprenticeship premium etc.

Preparation of Trading and Profit and
Loss account (a/c)
The "Trading and Profit & Loss a/c" is a ledger account. Like all ledger accounts, the
postings in this ledger account also flow from the journal. "No Journal No Ledger".

• Transactions making up the Trading and
Profit & Loss a/c
The transactions relating to the journal entries that would go into the "Trading and Profit &
Loss a/c" are not ones that are take place in the ordinary course of business. These are
transactions that are specifically meant to create this "Trading and Profit & Loss a/c".
Consider the above formula for ascertaining the profit or loss,
Profit = Sum of balances in Nominal accounts with a Credit Balance
− Sum of balances in Nominal accounts with a Debit Balance .

» For Ascertaining the sum of balances in Nominal
Accounts with a Debit Balance
This is done by transferring the balances in the nominal accounts with a debit balance, to an
account by name "Trading and Profit & Loss a/c".
Transferring a debit balance from one account to a second results in the
second account being debited and the first account being credited.
Therefore the Journal Entry would be
Journal in the books of M/s __ for the period from ____ to _____
Date
March
31st

V/R
No.

Particulars

Debit
Credit
L/F Amount Amount
(in Rs) (in Rs)
Dr –
xxxx

xxxx

– Trading and Profit & Loss a/c
To Nominal a/c [with a debit balance]
[For the debit balances in the nominal accounts
transferred to the "Trading and Profit & Loss a/c" for
the purpose of ascertaining the profits on the last day
of the accounting period ]

» For Ascertaining the sum of balances in Nominal
Accounts with a Credit Balance
This is done by transferring the balances in the nominal accounts with a credit balance to an

account by name "Trading and Profit & Loss a/c".
Transferring a credit balance from one account to a second results in the
second account being credited and the first account being debited.
Therefore the Journal Entry would be
Journal in the books of M/s __ for the period from ____ to _____
V/R
Date
No.
March
31st

Debit
Credit
L/F Amount Amount
(in Rs) (in Rs)
Dr –
xxxx

xxxx

Particulars

– Nominal a/c [with a credit balance]
To Trading and Profit & Loss a/c
[For the credit balances in the nominal accounts
transferred on the last day of the accounting period to
the "Trading and Profit & Loss a/c" for the purpose of
ascertaining the profits.]

• Trading and Profit and Loss Account (a/c)
Thus the "Trading and Profit & Loss a/c" would appear as follows
Dr Trading and Profit & Loss a/c Cr
Amount
Date
Particulars
J/F
Date
Particulars
(in Rs)
31/03/06
31/03/06
31/03/06
31/03/06
31/03/06

To Nominal a/c 1
[Dr]
To Nominal a/c 2
[Dr]
To Nominal a/c 3
[Dr]
...
...







sub-total
31/03/06 To Bal (Profit)
Total

xxx
xxx
xxx
xx
xxx

3,24,000


31/03/06
31/03/06
31/03/06
31/03/06
31/03/06

By Nominal a/c 1
[Cr]
By Nominal a/c 2
[Cr]
...
...

sub-total

J/F

Amount
(in Rs)



xxx
xxx
xxx
xxx
xxx

5,80,000

2,56,000
5,80,000

Total

5,80,000

Thus the "Trading and Profit & Loss a/c", is nothing but a consolidated account formed by
transferring the balances in the nominal accounts.

Balance Sheets
A balance sheet is a snapshot of a business’ financial condition at a specific moment in time,
usually at the close of an accounting period. A balance sheet comprises assets, liabilities, and
owners’ or stockholders’ equity. Assets and liabilities are divided into short- and long-term
obligations including cash accounts such as checking, money market, or government
securities. At any given time, assets must equal liabilities plus owners’ equity. An asset is

anything the business owns that has monetary value. Liabilities are the claims of creditors
against the assets of the business.

What is a balance sheet used for?
A balance sheet helps a small business owner quickly get a handle on the financial strength
and capabilities of the business. Is the business in a position to expand? Can the business
easily handle the normal financial ebbs and flows of revenues and expenses? Or should the
business take immediate steps to bolster cash reserves?
Balance sheets can identify and analyze trends, particularly in the area of receivables and
payables. Is the receivables cycle lengthening? Can receivables be collected more
aggressively? Is some debt uncollectable? Has the business been slowing down payables to
forestall an inevitable cash shortage?
Balance sheets, along with income statements, are the most basic elements in providing
financial reporting to potential lenders such as banks, investors, and vendors who are
considering how much credit to grant the firm.

1. Assets
Assets are subdivided into current and long-term assets to reflect the ease of liquidating each
asset. Cash, for obvious reasons, is considered the most liquid of all assets. Long-term
assets, such as real estate or machinery, are less likely to sell overnight or have the capability
of being quickly converted into a current asset such as cash.

2. Current assets
Current assets are any assets that can be easily converted into cash within one calendar
year. Examples of current assets would be checking or money market accounts, accounts
receivable, and notes receivable that are due within one year’s time.

• Cash
Money available immediately, such as in checking accounts, is the most liquid of all shortterm assets.

• Accounts receivables
This is money owed to the business for purchases made by customers, suppliers, and other
vendors.

• Notes receivables
Notes receivables that are due within one year are current assets. Notes that cannot be
collected on within one year should be considered long-term assets.

3. Fixed assets
Fixed assets include land, buildings, machinery, and vehicles that are used in connection with
the business.

• Land
Land is considered a fixed asset but, unlike other fixed assets, is not depreciated, because
land is considered an asset that never wears out.

• Buildings
Buildings are categorized as fixed assets and are depreciated over time.

• Office equipment
This includes office equipment such as copiers, fax machines, printers, and computers used
in your business.

• Machinery
This figure represents machines and equipment used in your plant to produce your product.
Examples of machinery might include lathes, conveyor belts, or a printing press.

• Vehicles
This would include any vehicles used in your business.

• Total fixed assets
This is the total dollar value of all fixed assets in your business, less any accumulated
depreciation.

4. Total assets
This figure represents the total dollar value of both the short-term and long-term assets of
your business.

5. Liabilities and owners’ equity
This includes all debts and obligations owed by the business to outside creditors, vendors, or
banks that are payable within one year, plus the owners’ equity. Often, this side of the balance
sheet is simply referred to as “Liabilities.”

• Accounts payable
This is comprised of all short-term obligations owed by your business to creditors, suppliers,
and other vendors. Accounts payable can include supplies and materials acquired on credit.

• Notes payable
This represents money owed on a short-term collection cycle of one year or less. It may
include bank notes, mortgage obligations, or vehicle payments.

• Accrued payroll and withholding
This includes any earned wages or withholdings that are owed to or for employees but have
not yet been paid.

• Total current liabilities
This is the sum total of all current liabilities owed to creditors that must be paid within a oneyear time frame.

• Long-term liabilities
These are any debts or obligations owed by the business that are due more than one year out
from the current date.

• Mortgage note payable
This is the balance of a mortgage that extends out beyond the current year. For example, you
may have paid off three years of a fifteen-year mortgage note, of which the remaining eleven
years, not counting the current year, are considered long-term.

• Owners’ equity
Sometimes this is referred to as stockholders’ equity. Owners’ equity is made up of the initial
investment in the business as well as any retained earnings that are reinvested in the
business.

• Common stock
This is stock issued as part of the initial or later-stage investment in the business.

• Retained earnings
These are earnings reinvested in the business after the deduction of any distributions to
shareholders, such as dividend payments.

6. Total liabilities and owners’ equity
This comprises all debts and monies that are owed to outside creditors, vendors, or banks
and the remaining monies that are owed to shareholders, including retained earnings
reinvested in the business.

Cash flow Stement:- Unlike the profit and loss account, which follows
the accruals principal, the cashflow statement records the actual movements in cash in
an accounting period. All cash received (inflows) by the company, and spent
(outflows) by the company will be shown in this statement.

As determining cash amounts involves less use of judgement and discretion than
determining profits or asset value, the cashflow statement is harder to manipulate than
the other main accounting statements (the profit & loss account and the balance
sheet).

The cashflow statement shows cash coming into a company (from sales, income from
investments, asset sales) and going out (payments to suppliers, investment), the
raising of capital (money borrowed or raised from shareholders) and the payment of
returns of capital (interest and dividends) and tax.
Like profit, cash flow can be measured at a number of levels. For example, operating
cash flow roughly corresponds to operating profit with the effects on non-cash items
stripped out.
The main items in a typical cash flow statement are (in order):









cash flow from operating activities
returns on investments and servicing of finance
taxation
capital expenditure and financial investments
acquisitions and disposals
equity dividends paid
management of liquid resources
financing

The returns on investments and servicing of finance includes dividends received (e.g.
from subsidiaries) and interest from fixed interest securities and bank deposits. It will
also show payments to lenders: both banks and holders of a company's fixed interest
securities.
Capital investments and financial investments will show the cashflow relating to the
purchase and disposal of fixed assets. Liquid resources are cash and liquid, short term,
investments.
All items in the cash flow statement can be significantly different from equivalent
items on the P & L. This is what makes the cash flow so valuable (it is not susceptible
to manipulation), but it can also make it less meaningful (there are good reasons for
accruing in the other accounting statements).
Operating cash flow is very often looked at by investors. The capital expenditure item
is a quicker way of finding out how heavily the company is investing than looking at
the balance sheet (and then correcting for depreciation etc.) but it has two weaknesses:
it does not record purchases not yet paid for and it does not allow one to separate
capital expenditure on operating assets from long term financial investments.
A more complex use of the cashflow statement is the calculation of free cash flow,
which can be used in valuation ratios and DCF valuations. All the items in the

cashflow statement provide a useful check on items in the other accounting statements
and are a vital input to the financial models used for forecasting.

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