[ISC] Q. 4 Cash Flow Statement Solution TS Grewal Class 12 (2026-27)
Solution of Question number 4 of the Cash Flow Statement of TS Grewal Book 2026-27 session ISC Board?
Identify which of the following transactions are: (a) Operating Activity; (b) Investing Activity (c) Financing Activity, and (d) Cash and Cash Equivalents:
(i) Cash Sales
(ii) Cash Purchases
(iii) Salary and Wages
(iv) Cash in Hand
(v) Cash at Bank
(vi) Cash Credit
(vii) Computer Maintenance Expenses
(viii) Purchase of Investments
(ix) Dividend received
(x) Dividend paid
(xi) Issue of Shares
(xii) Bank Overdraft
Solution:-
Here is the classification and reason for each item in exactly two lines:
(i) Cash Sales
Operating Activity because it is the primary source of cash inflow from selling a business’s goods or services. This transaction is the core driver of an enterprise’s daily revenue-producing operations.
(ii) Cash Purchases
Operating Activity because it represents a direct cash outflow for acquiring raw materials or inventory for daily operations. This expenditure is essential for sustaining the primary revenue-producing activities of the business.
(iii) Salary and Wages
Operating Activity because it represents the direct labor and administrative costs required to run daily business operations. Paying employees is a core operational cash outflow that sustains regular business functioning.
(iv) Cash in Hand
Cash and Cash Equivalents because it represents the most liquid asset already available with the enterprise. It is not classified under any of the three activities but forms the closing/opening balance of the cash flow statement.
(v) Cash at Bank
Cash and Cash Equivalents because it represents highly liquid funds readily available for immediate business use. Like cash in hand, it is treated as part of the total cash balance rather than an operating, investing, or financing activity.
(vi) Cash Credit
Financing Activity because it is a short-term borrowing facility used to raise capital for the business. Under accounting standards, changes in cash credit alter the enterprise’s short-term debt structure.
(vii) Computer Maintenance Expenses
Operating Activity because it is a routine, daily administrative cost incurred to keep operational assets in working condition. This outflow directly supports the primary revenue-producing operations of the enterprise.
(viii) Purchase of Investments
Investing Activity because it represents a cash outflow for acquiring non-current financial assets to earn future returns. This transaction involves allocating capital into long-term placements rather than daily operations.
(ix) Dividend received
Investing Activity because it is an income generated directly from the company’s long-term placements of capital in shares of other companies. It represents a cash inflow derived directly from holding a non-current asset.
(x) Dividend paid
Financing Activity because it represents a distribution of profits to shareholders who provided the equity capital. This cash outflow stems directly from servicing and maintaining the enterprise’s owner’s capital structure.
(xi) Issue of Shares
Financing Activity because it is a primary method of raising permanent equity capital for the company. This transaction directly alters the size and composition of the enterprise’s owner’s capital structure.
(xii) Bank Overdraft
Financing Activity because it is a short-term bank borrowing facility utilized to manage funding and capital requirements. Under modern accounting frameworks, changes in a bank overdraft are classified as part of the company’s borrowing and financing activities.
