CBSE Class 12 Accountancy Chapter 11: Cash Flow Statement NCERT Solutions

Reviewed by NCERT Help Editorial Team · Updated on 29 Jul 2026

NCERT Solutions PDF Class 12 PDF

This section provides detailed NCERT Solutions for Class 12 Accountancy, Chapter 11, focusing on the Cash Flow Statement. Students will learn about the definition of a cash flow statement, its primary purpose in tracking cash inflows and outflows from operating, investing, and financing activities. The solutions also elaborate on the classification of these activities as per Accounting Standard 3 (AS-3 Revised), providing examples for each category. Furthermore, the benefits and uses of a cash flow statement are explained, highlighting its importance in assessing a company's financial health, liquidity, and ability to generate cash. These solutions are designed to help students understand the core concepts and prepare effectively for their examinations by clarifying the fundamental aspects of cash flow analysis.

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Quick info

Board	CBSE
Class	Class 12
Subject	Accountancy
Session	2026
Language	English
Type	NCERT Solutions
Chapter	Chapter 11

Chapter summary

Chapter 11 of CBSE Class 12 Accountancy focuses on the Cash Flow Statement. This chapter's NCERT Solutions explain what a cash flow statement is, how it tracks cash movements from operating, investing, and financing activities, and the classification of these activities according to AS-3 Revised. The solutions also detail the various uses of a cash flow statement, emphasizing its role in financial analysis and decision-making. This content is crucial for understanding a company's liquidity and financial performance.

Learning outcomes

Understand the definition and purpose of a Cash Flow Statement.
Identify and classify cash flows into operating, investing, and financing activities.
Explain the importance of cash flow analysis for business assessment.
Recognize the uses of a Cash Flow Statement in financial decision-making.

Topics covered

Paper topics

Cash Flow Statement Definition
Cash Flow Activities Classification
Operating Activities
Investing Activities
Financing Activities
Purpose of Cash Flow Statement
AS-3 Revised

Important topics

Classification of Cash Flow Activities
Definition and Purpose of Cash Flow Statement
Uses of Cash Flow Statement

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Questions and Solutions

Question 1

What is a Cash Flow Statement?

Solution: A Cash Flow Statement is a crucial financial report that summarizes the cash inflows (receipts) and cash outflows (payments) of a company over a specific accounting period. It is prepared to understand how changes in the company's accounts and its business transactions affect cash and cash equivalents. The statement categorizes these movements into three primary activities: operating, investing, and financing, thereby helping stakeholders evaluate the company's ability to generate cash and its overall financial position.

Question 2

How are the various activities classified (as per AS-3 revised) while preparing cash flow statement?

Solution: As per Accounting Standard 3 (AS-3 Revised), cash flow activities are classified into three main categories:

Operating Activities: These are the principal revenue-generating activities of the enterprise. They generally result from the transactions and other events that enter into the determination of net profit or loss. Examples include cash received from the sale of goods and services, cash paid to suppliers for goods and services, and cash paid to and on behalf of employees. For a garment company, this would involve purchasing raw materials, manufacturing, and selling garments.
Investing Activities: These are the acquisition and disposal of long-term assets and other investments not included in cash equivalents. Examples include cash payments to acquire property, plant, and equipment (fixed assets), cash receipts from the sale of property, plant, and equipment, and cash payments to acquire shares or debt instruments of other entities.
Financing Activities: These are activities that result in changes in the size and composition of the equity capital and borrowings of the enterprise. Examples include cash proceeds from issuing shares or other similar instruments, cash proceeds from issuing debentures, bonds, notes, etc., and cash repayments of amounts borrowed.

Question 3

State the uses of cash flow statement?

Solution: The Cash Flow Statement offers several significant uses for various stakeholders:

Assessing Financial Structure and Net Assets: It provides information about the changes in the company's financial structure and its net assets, detailing the amount generated through cash inflows.
Evaluating Cash Generating Capacity: The statement highlights the business's ability to generate cash and cash equivalents, offering a clear picture of its liquidity and operational efficiency.
Facilitating Comparisons: By focusing on cash movements, it allows for more reliable comparisons between different companies or across different periods, irrespective of varying accounting treatments and policies used for profit calculation. This helps in determining the true cash-generating capacity.
Historical Cost Analysis: The statement records transactions at their historical cost, which can be valuable for users in determining important financial metrics and making informed decisions based on past performance.

Common mistakes

Confusing cash flows with profits.
Incorrectly classifying activities (operating, investing, financing).
Not understanding the purpose of tracking cash movements.

Revision tips

Clearly define each type of activity (operating, investing, financing) with examples.
Focus on the 'why' behind a cash flow statement – its uses and benefits.
Review the classification criteria as per AS-3 Revised thoroughly.

Practice MCQs

Q1. What is the primary purpose of a Cash Flow Statement?

Q2. Which activity involves transactions related to the acquisition and disposal of long-term assets?

Q3. Issuing equity shares is an example of which type of cash flow activity?

Q4. According to AS-3 (Revised), which of the following is NOT a primary classification of cash flow activities?

Frequently asked questions

What is a Cash Flow Statement?

A Cash Flow Statement is a financial statement that reports the cash generated and used by a company during a specific period. It categorizes these cash movements into operating, investing, and financing activities.

What are the three main types of activities classified in a Cash Flow Statement?

The three main types of activities are Operating Activities (related to the primary revenue-generating activities), Investing Activities (related to the purchase and sale of long-term assets and other investments), and Financing Activities (related to changes in the size and composition of the equity capital and borrowings of the entity).

Why is a Cash Flow Statement important for businesses?

It helps assess a company's ability to generate cash, meet its obligations, fund its operations, and make investments. It provides insights into liquidity and financial flexibility.

How does a Cash Flow Statement differ from a Profit and Loss Account?

A Profit and Loss Account shows profitability based on accrual accounting, including non-cash items. A Cash Flow Statement focuses solely on the actual movement of cash and cash equivalents.

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