Actual cash flows refer to the actual movements of cash into or out of business. Purchase of fixed assets for cash, borrowing from bank or financial institutions, redemption of debentures, etc., are a few examples of actual cash flows. There may be actual or direct flow of cash ‘in’ and ‘out’ of the business under the following circumstances:
Actual Flow of Cash:
Example: Issue of shares for cash.
Cash A/c Dr
To Share Capital A/c
This transaction results in the actual inflow of cash into the business. Similarly, there is inflow of cash when debentures are issued for cash, loans raised in cash, sale of fixed assets for cash, Dividends received in cash etc.
Actual Outflow of Cash:
Example: Purchase of Machinery for cash. Entry:
Machinery A/c Dr.
To Cash
This transaction results in the actual outflow of cash from the Business. Similarly, there is out flow of cash on repayment of loans, redemption of preference shares or debentures, payment of taxes, dividend, etc. in cash.
