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For students preparing for the **UGC NET Commerce exam**, understanding the **Cash Flow Statement** is essential. It's not just an accounting topic—it's a real-world financial tool used to assess the **liquidity and financial health** of a business. This topic is frequently asked in both conceptual and numerical forms in Paper 2.

What is a Cash Flow Statement?

A **Cash Flow Statement** is a financial report that shows **how cash and cash equivalents move** in and out of a business during a specific period. It helps in analyzing the **liquidity, solvency, and financial flexibility** of a company.

It is prepared as per **Accounting Standard 3 (AS-3)** in India.

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Importance of Cash Flow Statement in UGC NET

1. Frequently tested with **conceptual MCQs** and **numerical problems**.

2. Helps in **financial analysis**—a vital area of the UGC NET Commerce syllabus.

3. Builds foundation for topics like working capital management and corporate finance.

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Components of a Cash Flow Statement (AS-3 Format)

The Cash Flow Statement is divided into **three main activities**:

1. Operating Activities

These include the **primary revenue-generating activities** of the business.

**Examples**:

- Cash receipts from sales

- Payments to suppliers/employees

- Taxes paid

Adjustments to Net Profit** (Indirect Method):

- Add: Depreciation, Amortization, Loss on sale of asset

- Less: Gain on sale of asset, increase in current assets, decrease in current liabilities

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2. Investing Activities

These relate to **acquisition and disposal of long-term assets and investments**.

**Examples**:

- Purchase/sale of fixed assets

- Investment in shares or bonds

- Loans given or received

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3. Financing Activities

These show the **changes in capital and borrowings**.

**Examples**:

- Issue/redemption of shares or debentures

- Dividend payments

- Repayment of loans

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Types of Questions Asked in UGC NET

| Type | Example |

|------|---------|

| Conceptual | "Which activity includes the purchase of machinery?" |

| Numerical | "Calculate Cash Flow from Operating Activities using given data" |

| Match the Following | "Match activities to their category: Investing/Financing/Operating" |

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Direct vs Indirect Method (UGC NET Focus)

| Basis | Direct Method | Indirect Method |

|-------|---------------|-----------------|

| Focus | Lists actual cash receipts/payments | Starts from net profit and adjusts |

| Simplicity | More transparent | Commonly used in practice |

| UGC NET Tip | Know both methods | Indirect method is more tested numerically |

Key Points to Remember

- **Non-cash items** like depreciation, goodwill amortization are added back in the indirect method.

- **Working capital changes** impact only the operating section.

- **Dividends paid** → Financing activity

- **Interest received/paid** → Operating or Investing (depending on treatment under AS-3)

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Final Thoughts

The **Cash Flow Statement** is more than just an exam topic—it's a practical tool that every commerce graduate should understand. For UGC NET, make sure to:

- Learn the format thoroughly  

- Practice previous year numericals  

- Understand conceptual classifications  

With regular revision and clarity, you can easily score well in this section.

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