Statement of Cash Flows

The Statement of Cash flows provides information

about the cash receipts and cash payments of an entity during a period.

It is a formal statement that classifies cash receipts (inflows) and cash payments (outflows) into operating, investing and financing activities. This statement shows the net increase or decrease in cash during the period and the cash balance at the end of the period; it also helps project the future net cash flows of the entity.

Statement of Cash Flows

BENEFITS OF CASH FLOW INFORMATION

The Statement of Cash Flows provides information

that enables users to evaluate the changes in net assets of an entity, its financial structure (including its liquidity and solvency) and its ability to affect the amounts and timing of cash flows in order to adapt to changing circumstances and opportunities

Cash flows information is useful in assessing the

ability of the entity to generate cash and cash equivalents and enables users to develop models to assess and compare the present value of the future cash flows of different entities
Par. 4 PAS 7

Statement of Cash Flows

BENEFITS OF CASH FLOW INFORMATION

The Statement of Cash Flows enhances the

comparability of the reporting of operating performances by different entities because it eliminates the effects of using different accounting treatments for the same transactions and events indicator of the amount, timing and certainty of future cash flows

Historical cash flow information is often used as an

It is also useful in checking the accuracy of past

assessments of future cash flows and in examining the relationship between profitability and net cash flow and the impact of changing prices

Statement of Cash Flows

Cash and Cash Equivalents
The Statement of Cash flows provides information about the changes in an enterprises cash and cash equivalents. Cash comprises cash on hand and demand deposits.
Cash equivalents are short-term highly liquid investments that are readily convertible to known amount of cash and which are subject to an insignificant risks of change in value.

Statement of Cash Flows

Cash and Cash Equivalents
Investments qualifies as a cash equivalent only when it has a short maturity of three months or less from date of acquisition a. Three-month BSP treasury bills b. Three-year BSP treasury bills purchased three months before date of maturity c. Three-month time deposit d. Three-month money market placements

Equity securities cannot qualify as cash equivalents because shares of stocks do not have a maturity date
Preferred shares with specific redemption date and acquired three months before the redemption can qualify as cash equivalents

Statement of Cash Flows

Cash flows from Operating Activities
the cash flows derived primarily from the principal revenue producing activities of the entity generally are the cash effects of transactions and other events that enter into the determination of net income or net loss. The entitys net cash provided by (used in) operating activities is obtained by adding the individual operating cash inflows and then deducting the individual operating cash outflows.

Statement of Cash Flows

Cash flows from Operating Activities
an entity shall report cash flows from operating activities using either: (a) the direct method, whereby major classes of gross cash receipts and gross payments are disclosed; or (b) the indirect method, whereby profit or loss is adjusted for the effects of transactions of noncash nature, and deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
Par. 18 PAS 7

Statement of Cash Flows

Cash flows from Operating Activities
entities are encouraged to report cash flows from operating activities using the direct method because it provides information which may be useful in estimating future cash flows which is not available under the indirect method

Par. 19 PAS 7

Statement of Cash Flows

Cash flows from Operating Activities
a. Cash receipts from sale of goods and rendering of services b. Cash receipts from royalties, fees, commissions and other revenue c. Cash payments to suppliers for goods and services d. Cash payments to and on behalf of employees e. Cash receipts and cash payments of an insurance entity for premiums and claims, annuities and other policy benefits f. Cash payments or refunds of income taxes unless they can be specifically identified with financing and investing activities; and g. Cash receipts and payments from contracts held for dealings or trading purposes

Statement of Cash Flows

Cash Flows from Investing Activities Investing activities include making and collecting
loans; acquiring and disposing of investments in debts or securities; and obtaining and selling of property and equipment and other productive assets.

Investing activities are the cash derived from the

acquisition and disposal of long-term assets and other investments not included in cash equivalent As a simple rule, investing activities include cash flows transactions involving non-operating assets

Statement of Cash Flows

Cash Flows from Investing Activities
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-tem assets; c. Cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (current and long-term investments); d. Cash receipts from sales of equity or debt investments of other entities and interests in joint venture; e. Cash advances and loans made by financial institutions; f. Cash receipts from repayment of advances and loans made to other parties; g. Cash receipts from and cash payments for future contract, forward contract, option contract and swap contract

Statement of Cash Flows

Cash Flows from Financing Activities
Financing activities include obtaining resources from owners and creditors Financing activities are the cash flows derived from the equity capital and borrowings of the entity Financing activities are the cash flows that result from transactions between the entity and its owners (equity financing) and between the entity and its creditors (debt financing) As a simple rule, financing activities include the cash flows from transactions involving nontrade liabilities and Equity: of an entity

Statement of Cash Flows

Cash Flows from Financing Activities
a. Cash receipts from issuing shares or other equity instruments; b. Cash payments to owners to acquire or redeem the enterprises shares

c. Cash receipts from issuing debentures, loans, notes, bonds, mortgages, and other short or long term borrowings
d. Cash repayments of amounts borrowed; and e. Cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.

Statement of Cash Flows

Reporting Cash Flows from Operating Activities
An entity shall report cash flows from operating activities using either: (a) The direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed (b) The indirect method, whereby profit or loss is adjusted for the effects of transactions of a noncash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
Par. 18 PAS 7

Statement of Cash Flows

Reporting Cash Flows from Operating Activities

Entities are encouraged to report cash flows from operating activities using the direct method. The direct method provides information which may be useful in estimating future cash flows and which is not available under the indirect method.

Par. 19 PAS 7

Statement of Cash Flows

Reporting Cash Flows from Operating Activities
An entity shall report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities, except to the extent that cash flows arising from the following operating, investing or financing activities which may be reported on a net basis: (a) Cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the entity; and (b) Cash receipts and payments for items in which the turnover is quick, the amount is large, and the maturities are short.
Par. 21 & 22 PAS 7

Statement of Cash Flows

Foreign Currency Cash Flows
Cash flows from transactions in foreign currency shall be recorded in an entitys functional currency by applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date of the cash flow Cash flows of a foreign subsidiary shall be translated at the exchange rates between the functional currency and the foreign currency at the date of the cash flows
Par. 25 and 26 PAS 7

Statement of Cash Flows

Interest and Dividends
Cash flows from interest and dividends received and paid shall each be disclosed separately. Each shall be classified in a consistent manner from period to period as either operating, investing or financing activities.

Par. 31 PAS 7

Statement of Cash Flows

Interest and Dividends
Interest paid and interest and dividends received enter the determination of profit and loss and are, therefore, generally classified as operating activities. However, interest paid is considered to be a burden of financing; hence, it is alternatively shown under financing activities.

Par 31 PAS 7

Statement of Cash Flows

Taxes on Income
Cash flows arising from taxes on income shall be separately disclosed and shall be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities However, if it is practicable to identify the tax cash flow with an individual transaction that gives rise to cash flows that are classified as investing or financing activities, the tax cash flow can be classified as cash flows from investing and financing activities, as appropriate.
Par. 35 PAS 7

Statement of Cash Flows

Changes in Ownership Interests in Subsidiaries and Other Businesses
The aggregate cash flows arising from obtaining and losing control of subsidiaries or other businesses shall be presented separately and classified as investing activities.

Par. 39 PAS 7

Statement of Cash Flows

Noncash Transactions
Investing and financing activities that do not require use of cash or cash equivalents shall be excluded from the cash flow statement. The cash flow statement is strictly a cash concept. The following noncash transactions are disclosed separately: a. Acquisition of asset either by assuming a direct related liability or by means of a finance lease. b. Acquisition of asset by means of issuing share capital or bonds payable. c. Conversion of debt to equity. d. Conversion of preference share to ordinary share.
Par. 43 PAS 7

Kyle Richard Company Statement of Cash Flow For the Year Ended December 31, 2009 Cash Flow from Operating Activities: Cash received from customers Cash paid for operating expenses Cash paid for interest on bank loan Cash Flow from Investing Activities: Acquisition of Equipment Sale of Furniture Cash Flow from Financing Activities: Additional investment by the owner Cash withdrawal by owner for personal use Bank loan Payment of principal of bank loan Increase in Cash Balance Add: Cash balance at the beginning of the Period Cash Balance at the end of the Period DIRECT METHOD 250,000 (120,000) ( 1,500)

128,500

( 25,000) 10,000 ( 15,000)

80,000 ( 40,000) 90,000 ( 10,000)

120,000 233,500 54,000 287,500

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Carlo Buendia Service Company Statement of Cash Flow For the Year Ended December 31, 2008 Cash Flow from Operating Activities: Cash received from customers Cash paid for operating expenses Interest on investments Interest on bank loan Net Cash Flows from Operating Activities Cash Flow from Investing Activities: Purchase of Equipment Sale of Furniture & Fixtures Cash Flow from Financing Activities: Proceeds from bank loan Payment for principal of bank loan Additional Investment from Carlo Buendia Withdrawal of Carlo Buendia Increase in Cash Balance Add: Cash balance at the beginning of the Period Cash Balance at the end of the Period DIRECT METHOD 120,000 ( 60,000) 7,000 ( 2,000) 65,000 ( 40,000) 25,000 ( 15,000) 100,000 ( 5,000) 80,000 ( 10,000)

165,000 215,000 17,000 232,000

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Miguel Miranda Plumbing Services Statement of Cash Flow For the Year Ended December 31, 2009 Cash Flow from Operating Activities: Cash received from customers Cash received from notes receivable principal Salaries of employees Interest on notes payable Interest on notes receivable Cash Flow from Investing Activities: Purchase of Delivery Van Purchase of Furniture Sale of Equipment Cash Flow from Financing Activities: Proceeds from bank loan Payment for principal of bank loan Withdrawal of Miguel Miranda Increase in Cash Balance Add: Cash balance at the beginning of the Period Cash Balance at the end of the Period DIRECT METHOD 380,000 50,000 ( 90,000) ( 5,000) 6,000 341,000 (160,000) ( 35,000) 30,000 (165,000) 100,000 ( 25,000) ( 20,000)

55,000 231,000 34,000 265,000

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