Active learning ideas
The Cash Flow Statement (CFS) is a vital financial tool that tracks the actual movement of cash in and out of a business, as per Accounting Standard 3 (Revised). It bridges the gap between the accrual-based Profit and Loss account and the actual cash position. Students learn to classify activities into Operating, Investing, and Financing.
Activity 01
Groups are given a scenario where a company has high profits but a negative cash flow. They must investigate the 'Operating Activities' section to find the culprits, such as high receivables or excessive inventory build-up.
What constitutes cash and cash equivalents?
Activity 02
Post 15 transactions (e.g., 'Purchase of Machinery', 'Issue of Bonus Shares', 'Payment of Tax') around the room. Students move in groups to classify each as Operating, Investing, Financing, or 'No Cash Flow'.
How are operating activities calculated using the indirect method?
Activity 03
Students individually explain why depreciation is added back to net profit. They then pair up to discuss why an increase in 'Current Assets' is deducted. This helps them internalise the logic of the indirect method adjustments.
Where is the payment of dividends classified in the cash flow statement?
A few notes on teaching this unit
Watch Out for These Misconceptions
Students often think that 'Issue of Bonus Shares' is a financing activity.
Bonus shares involve no inflow or outflow of cash; they are just a capitalisation of reserves. A gallery walk helps students identify these 'non-cash' transactions that should be excluded from the CFS.
Believing that all 'Interest Paid' is an operating activity.
For a non-financial company, interest paid is a financing activity, while for a bank, it is operating. Peer teaching can help students distinguish between the nature of the business and its impact on cash flow classification.
Methods used in this brief
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