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Expression "Fund flow statement" is proper instead of "cash flow statement" - amendment is desired.

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Expression "Fund flow statement" is proper instead of "cash flow statement" - amendment is desired.
November 23, 2021
All Articles by: CA DEV KUMAR KOTHARI       View Profile
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Expression “Fund flow statement” is proper instead of “cash flow statement” – amendment is desired.

Cash flow statement:

In the provisions of the Companies Act, 2013 and allied provisions expression “cash flow statement” has been used at various places.

The statement will generally include movements of all cash and cash equivalents.

Cash vs. Non-cash, banking, digital economy:

Emphasis of Government and organizations is to avoid cash transactions and carry business maximum with banking channels and non cash instruments for payments and receipts.

In view of emphasis to avoid cash economy by various means it is surprising that in the Companies Act 2013 also expression “cash flow statement” is continued in various provisions, including Accounting Standards.

We find that easy way prevails for amendments by way of delegated legislations through notifications to amend various provisions applicable to companies and accounts of companies and other organizations and various forms in use.

However, it seems that this area relating to ‘CASH FLOW STATEMENT” REMINED UNTOUCHED AND THE PROPER EXPRESSION LIKE FUND FLOW STATEMENT has nto yet been used.

Even Companies are generally using expression cash flow statement, although they include it ic changes for cash and cash equivalent.

Although by readers expression cash flow statement is understood in sense of ‘fund flow statement’, but the expression cash flow statement is a misnomer. Author do not think that if someone make a change voluntarily to use expression “fund flow statement”, any one including any authority of government should have any objection.

Examples of use of expression ‘CASH FLOW STATEMENT” in provisions with highlights added or catch words picked up by the author:

From the Companies Act, 2013.

From section 2 :

2. In this Act, unless the context otherwise requires,-

(40) "financial statement" in relation to a company, includes-

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

From section 129

Financial statement

129. (1) The financial statements shall give a true and fair view of the state of affairs of the company or companies, comply with the accounting standards notified under section 133 and shall be in the form or forms as may be provided for different class or classes of companies in Schedule III:

From section 134

Financial statement, Board's report, etc.

134. 2[(1) The financial statement, including consolidated financial statement, if any, shall be approved by the Board of Directors …..

From Schedule III


(See section 129)

3Division I

Financial Statements for a company whose Financial Statements are required to comply with the Companies (Accounting Standards) Rules, 2006.


Note: This Schedule sets out the minimum requirements for disclosure on the face of the Financial Statements, i.e., Balance Sheet, Statement of Changes in Equity for the period, the Statement of Profit and Loss for the period (The term ‘Statement of Profit and Loss’ has the same meaning as ‘Profit and Loss Account’) and Notes. Cash flow statement shall be prepared, where applicable, in accordance with the requirements of the relevant Indian Accounting Standard.

(ii) Cash flow hedging:

- Currency derivatives

- Interest rate derivatives

- Credit derivatives

- Equity linked derivatives

- Others

iii. The effective portion of gains and loss on hedging instruments in a cash flow hedge;

Q. Cash and cash equivalents

(i) Cash and cash equivalents shall be classified as :

(a) Balances with banks;

(b) Cheques, drafts on hand;

(c) Cash on hand;

(d) Others (specify nature).

(ii) Earmarked balances with banks (for example, for unpaid dividend) shall be separately stated.

(iii) Balances with banks to the extent held as margin money or security against the borrowings, guarantees, other commitments shall be disclosed separately.

(iv) Repatriation restrictions, if any, in respect of cash and bank balances shall be separately stated.

(v) Bank deposits with more than twelve months maturity shall be disclosed separately.

From Accounting Standard (AS) 3

Cash Flow Statements

(This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective and the General Instructions contained in Part A of the Annexure to the Notification)

This Accounting Standard is not mandatory for Small and Medium Sized Companies, as defined in the Notification. Such companies are however encouraged to comply with the Standard.


Information about the cash flows of an enterprise is useful in providing users of financial statements with a basis to assess the ability of the enterprise to generate cash and cash equivalents and the needs of the enterprise to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an enterprise to generate cash and cash equivalents and the timing and certainty of their generation.

The Standard deals with the provision of information about the historical changes in cash and cash equivalents of an enterprise by means of a cash flow statement which classifies cash flows during the period from operating, investing and financing activities.


1. An enterprise should prepare a cash flow statement and should present it for each period for which financial statements are presented.

In illustrations and working notes also expression cash flow is used for example:

Illustration II

Cash Flow Statement for a Financial Enterprise
This illustration does not form part of the accounting standard. Its purpose is to illustrate the application of the accounting standard.

1. The illustration shows only current period amounts.

2. The illustration is presented using the direct method.

Cash flows from operating activities

(Rs. ’000)


Interest and commission receipts


Interest payments


Recoveries on loans previously written off


Cash payments to employees and suppliers


Operating profit before changes in operating assets


(Increase) decrease in operating assets:

Short-term funds


Deposits held for regulatory or monetary control purposes


Funds advanced to customers


Net increase in credit card receivables


Other short-term securities


Increase (decrease) in operating liabilities:

Deposits from customers


Certificates of deposit


Net cash from operating activities before income tax


Income taxes paid


Net cash from operating activities


Cash flows from investing activities

Dividends received


Interest received


Proceeds from sales of permanent investments


Purchase of permanent investments


Purchase of fixed assets


Net cash from investing activities


Cash flows from financing activities

Issue of shares


Repayment of long-term borrowings


Net decrease in other borrowings


Dividends paid


Net cash from financing activities


Net increase in cash and cash equivalents


Cash and cash equivalents at beginning of period


Cash and cash equivalents at end of period



In view of above discussions, learned author find that the expression ‘CASH FLOW STATEMENT” is a misnomer and it is desirable that it must be changed so that people are not confused and the statement is not considered as a statement limited to cash inflows and cash outflows only.


By: CA DEV KUMAR KOTHARI - November 23, 2021



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