Chapter 4 Statement of Cash Flows

“Statement of
BSA
2103 Cash Flows”
Andal, Justine Maureen U.
Bagui, Edward Glenn
Maala, Edsel J.
“Statement of
STATEMENT OF CASH
Cash Flows”
FLOWS
-is a component of financial

statements summarizing the
operating, investing and financing
activities of an entity.
IN SIMPLE LANGUAGE, WHAT IS
“Statement of
STATEMENT OF CASH FLOWS? Cash Flows”
IT PROVIDES INFORMATION
ABOUT THE CASH RECEIPTS
AND CASH PAYMENTS OF
AN ENTITY DURING A
PERIOD
“Statement of
STATEMENT OF CASH
Cash Flows”
FLOWS
IT IS AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS
FOR EACH PERIOD FOR
WHICH FINANCIAL ARE
PRESENTED
WHAT IS THE PRIMARY PURPOSE
“Statement of
OF A STATEMENT OF CASH FLOWS? Cash Flows”
TO PROVIDE RELEVANT
INFORMATION ABOUT CASH
RECEIPTS AND CASH
PAYMENTS OF AN ENTITY
DURING A PERIOD.
“Statement of
CASH Cash Flows”
COMPRISES CASH ON HAND

AND DEMAND DEPOSITS.
“Statement of
Cash Equivalents Cash Flows”
ARE SHORT-TERM HIGHLY

LIQUID INVESTMENTS THAT
ARE READILY
CONVERTIBLE TO KNOWN
AMOUNT OF CASH AND
WHICH ARE SUBJECT TO
AN INSIGNIFICANT RISK OF
CHANGE IN VALUE.
PAS 7, Paragraph 7, provides “Statement of
that... Cash Flows”
AN INVESTMENT
NORMALLY QUALIFIES AS A
CASH EQUIVALENT ONLY
WHEN IT HAS A SHORT
MATURITY OF THREE
MONTHS OR LESS FROM
DATE OF ACQUISITION.
“Statement of
Cash Flows”
IN OTHER WORDS, THE

INVESTMENT MUST BE
ACQUIRED THREE MONTHS
OR LESS BEFORE THE DATE
OF MATURITY.
EXAMPLES OF CASH “Statement of
EQUIVALENTS: Cash Flows”
a. Three month BSP Treasury Bill
b. Three-year BSP treasury bill
purchased three months before
date of maturity
c. Three-month time deposit
d. Three-month money market
instrument or commercial paper
“Statement of
Cash Flows”
• Cash flows are inflows and outflows

of cash and cash equivalents.
• It shall report cash flows during the
period classified as operating,
investing and financing activities.
“Statement of
Cash Flows”
Operating Activities
ARE THE CASH FLOWS
DERIVED PRIMARILY FROM
THE PRINCIPAL REVENUE
PRODUCING ACTIVITIES OF
THE ENTITY.
“Statement of
EXAMPLES OF CASHFLOWS
Cash Flows”
FROM OPERATING ACTIVITIES:
a. Cash receipts from sale of goods and
rendering services
b. Cash receipts from royalties, rental,
fees, commissions and other revenue.
c.Cash payments to suppliers for goods
and services.
d.Cash payments for selling,
“Statement of
TRADING SECURITIES Cash Flows”
PAS 7, paragraph 15, provides that cash

flows arising from the purchase and sale
of dealing and or trading securities are
classified as operating activities.
“Statement of
Cash Flows”
SIMILARLY, CASH ADVANCES AND

LOANS MADE BY FINANCIAL
INSTITUTION ARE USUALLY
CLASSIFIED AS OPERATING
ACTIVITIES.
“Statement of
WHAT ARE INVESTING ACTIVITIES? Cash Flows”
INVESTING ACTIVITIES ARE CASH

FLOWS DERIVED FROM THE
ACQUISITION AND DISPOSAL OF
LONG TERM ASSETS AND OTHER
INVESTMENTS NOT INCLUDED IN
CASH EQUIVALENT.
“Statement of
Cash Flows”
AS A SIMPLE GUIDE, INVESTING

ACTIVITIES INCLUDE CASH FLOWS
FROM TRANSACTIONS INVOLVING
NONOPERATING ACTIVITIES.
EXAMPLES OF CASH FLOWS FROM “Statement of
INVESTING ACTIVITIES: Cash Flows”
a. Cash payments to acquire property, plant and

equipment, intangibles and other long term assets.
b. Cash receipts from sales of property, plant and
equipment, intangibles and other long term assets.
c. Cash payments to acquire equity or debt instruments of
other entities.
d. Cash receipts from sales of equity or debt instruments of
other entities
EXAMPLES OF CASH FLOWS FROM “Statement of
INVESTING ACTIVITIES: Cash Flows”
e. Cash advances and loans to other parties other

than advances and loans made by financial
institution.
f. Cash receipts from repayment of advances and
loans.
g. Cash payments for futures contract, forward
contract, option contract and swap contract.
h. Cash receipts from futures contract, forward
contract, option contract and swap contract.
“Statement of
FINANCING ACTIVITIES Cash Flows”
are the cash flows derived

from the equity capital and
borrowings of the entity.
IN OTHER WORDS, FINANCING ACTIVITIES “Statement of
ARE THE CASH FLOWS THAT RESULT FROM Cash Flows”
TRANSACTIONS:
A. BETWEEN THE ENTITY AND THE

OWNERS-EQUITY FINANCING.
B.BETWEEN THE ENTITY AND THE
CREDITORS- DEBT FINANCING
“Statement of
Cash Flows”
AS A SIMPLE GUIDE, FINANCING

ACTIVITIES INCLUDE THE CASH
FLOWS FROM TRANSACTIONS
INVOLVING NONTRADE
LIABILITIES AND EQUITY OF AN
ENTITY.
“Statement of
EXAMPLES OF CASHFLOWS
FROM FINANCING ACTIVITIES: Cash Flows”
a. Cash receipts from issuance of ordinary and
preference shares
b. Cash payments to acquire treasury stocks
c. Cash receipts from issuing debentures, loans,
notes, bonds, mortgages and other short or long term
borrowings.
d. Cash payments for amounts borrowed
e. Cash payments by a lessee for the reduction of
the outstanding principal lease liability.
“Statement of
Noncash Transactions Cash Flows”
PAS 7, Paragraph 43, provides that

investing and financing transactions
that do not require use of cash or
cash equivalents shall be excluded
from the statement of cash flows.
THE FOLLOWING NONCASH “Statement of
TRANSACTIONS ARE DISCLOSED Cash Flows”
SEPARATELY:
a. Acquisition of asset by assuming directly
related liability.
Acquisition of asset by issuing share capital.
c. Acquisition of asset by issuing bonds
payable.
d. Conversion of bonds payable into share
capital.
e. Conversion of preference shares into
ordinary shares
“Statement of
INTEREST Cash Flows”
PAS 7, Paragraph 33, provides

that interest paid and interest
received shall be classified as
operating cash flows because
they enter into the determination
of net income or loss.
“Statement of
DIVIDENDS Cash Flows”
PAS 7, Paragraph 33, provides

that dividend received shall be
classified as operating cash flow
because it enters into the
determination of net income.
“Statement of
INCOME TAXES Cash Flows”
PAS 7, Paragraph 35, provides that

cash flows arising from income taxes
shall be separately disclosed as cash
flows from operating activities unless
they can be specifically identified
with investing and financing
activities.
WHAT IS THE DIRECT METHOD OF “Statement of
MAKING THE STATEMENT OF CASH
FLOWS? Cash Flows”
THE STATEMENT OF CASH FLOWS

DIRECT METHOD USES ACTUAL CASH
INFLOWS AND OUTFLOWS FROM THE
COMPANY'S OPERATIONS, INSTEAD
OF MODIFYING THE OPERATING
SECTION FROM ACCRUAL
ACCOUNTING TO A CASH BASIS.
“Statement of
Accrual accounting Cash Flows”
recognizes revenue when it is earned

versus when the payment is received
from a customer. Conversely, the cash
flow direct method measures only the
cash that's been received, which is
typically from customers and the cash
payments or outflows, such as to
suppliers.
“Statement of
Cash Flows”
THE INFLOWS AND OUTFLOWS ARE

NETTED TO ARRIVE AT THE CASH
FLOW. THE DIRECT METHOD IS ALSO
KNOWN AS THE INCOME STATEMENT
METHOD.
“Statement of
Cash Flows”
In other words, changes in asset and
liability accounts that affect cash
balances throughout the year are
added to or subtracted from net
income at the end of the period to
arrive at the operating cash flow. The
operating activities section is the only
difference between the direct and
indirect methods.
“Statement of
Cash Flows”
COMPANIES TEND TO PREFER THE

INDIRECT PRESENTATION TO
THE DIRECT METHOD BECAUSE THE
INFORMATION NEEDED TO CREATE
THIS REPORT IS READILY AVAILABLE
IN ANY ACCOUNTING SYSTEM.

Chapter 4 Statement of Cash Flows

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Chapter 4 Statement of Cash Flows

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“Statement of

-is a component of financial

COMPRISES CASH ON HAND

ARE SHORT-TERM HIGHLY

IN OTHER WORDS, THE

• Cash flows are inflows and outflows

PAS 7, paragraph 15, provides that cash

SIMILARLY, CASH ADVANCES AND

INVESTING ACTIVITIES ARE CASH

AS A SIMPLE GUIDE, INVESTING

a. Cash payments to acquire property, plant and

e. Cash advances and loans to other parties other

are the cash flows derived

A. BETWEEN THE ENTITY AND THE

AS A SIMPLE GUIDE, FINANCING

PAS 7, Paragraph 43, provides that

PAS 7, Paragraph 33, provides

PAS 7, Paragraph 33, provides

PAS 7, Paragraph 35, provides that

THE STATEMENT OF CASH FLOWS

recognizes revenue when it is earned

THE INFLOWS AND OUTFLOWS ARE

COMPANIES TEND TO PREFER THE

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