2/28/2020

Statement of Cash Flows

 Cash Transactions
 Non-Cash Transactions

Cash Transactions
Transactions that involve INFLOW and OUTFLOW of cash

Non-Cash Transactions
Transactions that do not involve INFLOW and OUTFLOW of cash

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Statement of Cash Flows

1. Amount paid for purchase of land
2. Cash paid to suppliers
3. Depreciation for furniture and fixtures
4. Purchase of land in exchange of common shares
5. Adjustment for foreign exchange rates
6. Cash receipts from disposal of fixed assets
7. Purchased plant and machinery for Rs. 2 million, paid 0.5 million and
issued debentures for balance.
8. Sold building for Rs. 3 million, received shares for 2 million and
balance in cash.
9. Declared dividend Rs. 5 per common share.
10. Received dividend Rs. 3 per common stock.

Statement of Cash Flows

11. Issued debentures for Rs.15 million.
12. Paid incentives to employees in the form of right issue.
13. Amount collected from credit customers.
14. Salaries paid to employees.
15. Accrued interest amounting to Rs.300,000.
16. Income tax payable amounts to Rs.100,000.
17. Transaction: Interest Expense(Dr) to Prepaid interest(Cr).
18. Depletion of coal mine charged for Rs.30 million.
19. Goodwill written off for Rs.10 million.

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Statement of Cash Flows

20. Loss on disposal of fixed asset.
21. Loss incurred on disposal of building amounting to Rs.3 million, book
value of Building was Rs.12 million.
22. Gain on sale of asset.
23. Book value of land was Rs.20 million, earned profit on disposal of land
amounting to Rs.5 million.
24. Opening balance of receivable was Rs.1.5 million, however closing
balance was Rs.0.5 million no bad debts during the year.
25. Credit sales amount to Rs.39 million, sales return was 3 million,
closing balance of trade receivables were 5 million.
26. Opening balance of payables were Rs.1.5 million, closing balance was
Rs.0.5 million no payables written off.

Statement of Cash Flows

o It’s the only statement prepared on cash basis, not on an accrual basis.

o Accounting records must be adjusted to exclude non-cash items.

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Statement of Cash Flows

 Statement of Cash Flows

o Purpose (Why to prepare SCF)
o Uses (What to assess from SCF)

Statement of Cash Flows

 Purpose:
o Provide information about the cash receipts(inflows) and cash
payments(outflows) of an entity during a period.
o Reconciliation of data for those who feel that accrual
accounting does not present true picture.
o Summarize the activities of the business into operating,
investing, financing categories.

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Statement of Cash Flows

 Uses:
o Assessing the entity’s ability to generate positive future cash
flows.
• Where did cash come from?
• What was cash used for?
• What was the change in the cash balance?
o Assessing the entity’s ability to pay dividends and meet
obligations including company’s need for external financing.
o Assessing the cash and noncash transactions during the period
pertaining to investing and financing.
o Reconciling the difference between net income and net cash
flow from operating activities.

Statement of Cash Flows

 Sources of Information Required:

o Opening & Closing Balance Sheets for respective reporting period.

o Statement of Comprehensive Income for respective reporting period.
o Statement of changes in equity for the respective reporting period.
o Selected Transaction Data affecting the financials of respective
reporting period if any.

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Statement of Cash Flows

 Classification of Cash Flows:

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Statement of Cash Flows

Classification of Cash Flows:

o Operating Activities:
• Transactions related to the calculation of net income. That is..
 Cash provided by the operating activities like sale of
goods or services, including interest and dividends
received.
 Cash used to pay operating expenses like purchase of
goods or services and salaries to employees, including
interest expense e.t.c.

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Statement of Cash Flows

Examples of cash flows from operating activities are:

o (a) Cash receipts from the sale of goods and the rendering of services;

o (b) Cash receipts from royalties, fee, commissions and other revenue;

o (c) Cash payments to suppliers for goods and services;

o (d) Cash payments to employees and/or their behalf;

o (e) Cash receipts and cash payments of an insurance entity for premiums and
claims, annuities and other policy benefits;

o (f) Cash payments or refunds of income taxes unless they can be specifically
identified with financing and investing activities; and

o (g) Cash receipts and payments from contracts held for dealing or trading
purposes.

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Statement of Cash Flows

Classification of Cash Flows:
o Investing Activities:
• Transactions related to long-term assets. That is..
 Cash obtained by selling long-term assets and investments
 Cash used to buy long-term assets and investments.

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Statement of Cash Flows

 Examples of cash flows arising from investing activities are:
o (a) Cash payments to acquire property, plant, equipment, intangibles and
other long-term assets. These payments include those relating to
capitalized development costs and self-constructed property, plant and
equipment;
o (b) Cash receipts from sales of property, plant and equipment, intangibles
and other long-term assets;
o (c) Cash payments to acquire equity or debt instruments of other entities and
interests in joint ventures (other than payments for those instruments
considered to be cash equivalents or those held for dealing or trading
purposes);
o (d) Cash receipts from sales of equity or debt instruments of other entities
and interests in joint ventures (other than receipts for those instruments
considered to be cash equivalents and those held for dealing or trading
purposes);
o (e) Cash advances and loans made to other parties (other than advances
and loans made by a financial institution);

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Statement of Cash Flows

 Examples of cash flows arising from investing activities are:
o (f) Cash receipts from the repayment of advances and loans made to
other parties (other than advances and loans of a financial institution);
o (g) Cash payments for future contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or
trading purposes, or the payments are classified as financing activities;
o (h) Cash receipts from future contracts, forward contracts, option contracts
and swap contracts except when the contracts are held for dealing or
trading purposes, or the receipts are classified as financing activities.

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Statement of Cash Flows

Classification of Cash Flows:

o Financing Activities:
• Transactions related to liabilities and stockholders’ equity. That is..
 Cash provided by issuing stock or debt instruments.
 Cash used to repay debt principal and repurchase stock.
 Cash used to pay dividends, but NOT interest paid on debt.

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Statement of Cash Flows

Examples of cash flows arising from financing activities are:

(a) Cash proceeds from issuing shares or other equity instruments;

(b) Cash payments to owners to acquire or redeem the entity’s shares;
(c) Cash proceeds 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.

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Statement of Cash Flows

 Nature of Activities
1. Sale of common stock
F
2. Sale of land
I
3. Purchase of treasury stock
F
4. Merchandise sales
O
5. Issuance of a long-term note payable
F
6. Purchase of merchandise
O
7. Repayment of note payable
F
8. Employee salaries
O
9. Sale of equipment at a gain
I
10. Issuance of bonds
F

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Statement of Cash Flows

11. Acquisition of bonds of another corporation
I
12. Payment of semiannual interest on bonds payable
O
13. Payment of a cash dividend
F
14. Purchase of building
I
15. Collection of nontrade note receivable (principal amount)
I
16. Loan to another firm
I
17. Retirement of common stock
F
18. Income taxes
O
19. Issuance of a short-term note payable
F
20. Sale of a copyright
I

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Statement of Cash Flows

There are three parts to the Statement of Cash Flows (or Cash Flow Statement):
1. Operating Activities
2. Investing Activities
3. Financing Activities
For each of the following items, indicate which part will be affected.
1. Depreciation Expense.
2. Proceeds from the sale of equipment used in the business.
3. The Loss on the Sale of Equipment.
4. Declaration and payment of dividends on company's stock.
5. Gain on the Sale of Automobile formerly used in the business.
6. The proceeds from the sale of the automobile.
7. An increase in the balance in a retailer's Merchandise Inventory.
8. An increase in the balance in Accounts Payable.
9. Retirement of long-term Bonds Payable.

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Statement of Cash Flows

There are three parts to the Statement of Cash Flows (or Cash Flow Statement):
1. Operating Activities
2. Investing Activities
3. Financing Activities
For each of the following items, indicate which part will be affected.
10. Purchase of Treasury Stock (company's own stock).
11. The purchase of a new delivery truck to be used in the business.
12. A decrease in the balance of Accounts Receivable.
13. An increase in Bonds Payable (a long-term liability).
14. A decrease in the current asset account Prepaid Insurance.
15. A decrease in the current liability Income Taxes Payable.
16. The proceeds from issuing additional Common Stock.
17. The amortization of the cost of an intangible asset.
18. The exchange/conversion of long-term bonds into common stock.

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Statement of Cash Flows

 Exercise#1
Bank July 1, 2015 - Rs. 100,000
Cash Sales - Rs. 1,500,000
Purchases - Rs. 600,000
Interest Paid - Rs. 50,000
Admin Expenses paid - Rs. 40,000
Marketing Expenses paid - Rs. 30,000
Gain on sale of asset - Rs. 90,000
Sale proceeds from Plant & Machinery - Rs. 1,000,000
Payment made for purchase of Equipment - Rs. 400,000
Sale proceeds from issue of debentures - Rs. 550,000
Payment for treasury stock - Rs. 300,000

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Statement of Cash Flows

 Exercise#2
Cash & Cash Equivalents July 1, 2015 - Rs. 45,200
Cash & Cash Equivalents June 30, 2016 - Rs. 64,200
Cash paid to acquire plant assets - Rs. 21,000
Proceeds from short term borrowings - Rs. 10,000
Loan made to borrowers - Rs. 5,000
Collection on loans excluding interests - Rs. 4,000
Interest and dividends received - Rs. 17,000
Cash received from customers - Rs. 795,000
Proceeds from sale of plant assets - Rs. 9,000
Dividends paid - Rs. 65,000
Cash paid to suppliers and employees - Rs. 635,000
Interest paid - Rs. 19,000
Income Taxes paid - Rs. 71,000

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Statement of Cash Flows

 Exercise#3
Credit Sales - Rs. 1,500,000
Sales Returns - Rs. 50,000
Cash Sales - Rs. 1,000,000
Credit Purchases - Rs. 500,000
Cash Purchases - Rs. 600,000
Purchase Returns - Rs. 30,000
Cash paid to acquire plant assets - Rs. 210,000
Proceeds from short term borrowings - Rs. 100,000
Loan made to borrowers - Rs. 50,000
Proceeds from sale of plant assets - Rs. 90,000
Interest paid - Rs. 190,000
Income Taxes paid - Rs. 71,000
Dividends paid - Rs. 65,000
Account Balances: July 1, 2014 June 30, 2015
Cash Rs. 45,000 Rs.
Inventory Rs. 100,000 Rs. 75,000
Account Receivables Rs. 60,000 Rs. 40,000
Accounts payables Rs. 50,000 Rs. 60,000

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Statement of Cash Flows

 Methods of Cash Flow Statement:

o Direct Method
o Indirect Method

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Statement of Cash Flows

 Methods of Cash Flow Statement:
o Direct Method
Cash Receipts
(1) Cash collected from customers
= Net sales + Decrease in Receivables (or - increase in receivables)
OR
= Net Sales + Opening Trade Receivables – Closing Trade Receivables
(2) Interest and dividends received.
(3) Other operating cash receipts, if any.

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Statement of Cash Flows

Direct Method
Cash Payments
(1) Cash paid to suppliers for goods or services
=Purchases + Increase in inventory (or - decrease in inventory) + Decrease in Payables (or – Increase in Payables)
or
= Purchases + Closing Inventory – Opening Inventory + Opening Payables – Closing Payables
or
Payables to suppliers = Purchases + closing inventory - opening inventory
Cash paid to suppliers = Payables to suppliers + opening payables – closing payables
(2) Cash paid to employees
= Salaries Expense + Opening Salaries payables – closing salaries payables or
= Salaries Expense + Decrease in payables (or – increase in payables)
(3) Cash paid for prepaid assets
= expired rent/insurance + closing prepaid rent/insurance – opening prepaid rent/insurance or
= Rent Expense - Decrease in prepaid rent or (+ Increase in Prepaid Rent)
(4) Interest Paid.
= Interest Expense + opening Interest payable – closing interest payable or
= Interest Expense + Decrease in interest payable or (- Increase in Interest Payable)
(5) Income Taxes paid.
= Tax Expense + opening tax payable – closing tax payable
(6) Other operating cash payments, if any.

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Statement of Cash Flows

 Methods of Cash Flow Statement:
In-direct Method
Cash flow from Operating Activities
Net Income
Add:
Non-Cash Expenses (Depreciation, Amortization & Depletion)
Decrease in Accounts Receivables
Decrease in Inventories
Decrease in prepaid assets
Increase in Accounts payables
Increase in accrued expenses payable
Increase in deferred income taxes payables
Non-operating losses deducted in calculating net income
Less:
Increase in Accounts Receivables
Increase in Inventories
Increase in prepaid assets
Decrease in Accounts payables
Decrease in accrued expenses payable
Decrease in deferred income taxes payables
Non-operating gains included in calculating net income
Net Cash provided by or (used in) Operating Activities

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Statement of Cash Flows

Please indicate whether Below mentioned statements have a positive (source) or
negative (use) EFFECT ON CASH.
1. An increase in the balance of Prepaid Insurance.
2. A decrease in Supplies on hand.
3. The proceeds from the sale of equipment formerly used in the business.
4. The Loss on the Sale of Equipment in the previous question.
5. An increase in the current liability Income Taxes Payable.
6. A decrease in Accounts Payable.
7. An increase in Accounts Receivable.
8. An increase in the current liability.
9. Dividends declared and paid.
10. Proceeds from the issuance of Preferred Stock.
11. The Gain on the Sale of Equipment formerly used in the business.
12. An increase in the long-term asset.
13. Investment in another company.

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Statement of Cash Flows

13. For a recent year a corporation's financial statements reported the following:

Based on the above information, what amount will the corporation report as Cash Provided by
Operating Activities on the cash flow statement?
$65,000
$125,000
$155,000

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Statement of Cash Flows

14. A corporation reported the following information for the past year:

Assuming these are the only facts, what amount will the corporation report as the
Cash Provided by Operating Activities on the cash flow statement?
$225,000
$235,000
$253,000

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Statement of Cash Flows

Exercise#4 December 31 2011 2010
Accounts Receivable 34,130 28,410
Prepaid Rent 20,000 25,000
Prepaid Insurance 6,800 6,000
Inventory 23,030 15,450
Accounts Payable 14,590 31,300
Salaries Payable 8,310 5,120
Interest Payable 700 360
Income Tax Payable 2,340 0

Year Ended December 31, 2011

Net Credit Sales 64,970
Salaries Expense 8,610
Rent Expense 5,000
Insurance Expense 3,200
Interest Expense 1,650
Tax Expense 3,000

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Statement of Cash Flows

Exercise#5

Net Income $7,000

Depreciation Expense 1,000
Increase in Accounts Receivable 4,400
Increase in Prepaid Rent 7,000
Decrease in Prepaid Insurance 1,300
Increase in Accounts Payable 14,000
Increase in Wages Payable 1,000
Decrease in Income Tax Payable 700
Gain on Sale of Equipment 1,800

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Statement of Cash Flows

o Exercise #6
o CD Ltd. is engaged in manufacture of fertilizer. For the year ended 30 June
2012, it installed a new plant worth US $800 million (50% of which is financed
by issue of debt instruments).
o The old plant is disposed at a loss of $10 million. The closing written down
value of the disposed plant was $150 million.
o It expended $20 million on construction of new plant building and
infrastructure.
o The company sold off its stake of $50 million in EF Ltd. a subsidiary that was
engaged in food processing. It received US $10 million on account of
repayment of principal and $2 million on account of interest income. It
received dividends of $5 million during the year.

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Statement of Cash Flows

Following data is available for M/s. NewEra for the year ended June 30, 2015

Net Income: Rs. 501,000

Depreciation: Rs. 320,500
Gain on sale of equipment: Rs. 100,000
Loss on disposal of plant: Rs. 110,100
Accounts Balances: June 30, 2015 July 1, 2014
Cash& Bank 279,500 730,000
Accounts receivables 850,000 720,000
Accrued Interest Receivable 5,000 9,000
Inventories 700,000 953,000
Short term prepayments 19,000 13,000
Accounts payables (merchandise) 550,000 580,000
Accrued operating expenses payable 65,000 94,000
Accrued Interest payable 25,000 11,000
Accrued Income Taxes Payable 52,000 25,000
It purchased a plant costing Rs. 3,500,000 partially on account, paid consideration
Rs.1,250,000 and issued a common stock for balance.
Production of new plant improved the performance. It purchased its treasury stock worth
Rs.35,000 and paid dividend worth Rs.120,000.
The closing written down value of the disposed plant was 980,000. It expended Rs.850,000
on construction of new plant building and infrastructure.

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Standard Format of Statement of

Cash Flows

37

Company, Inc.
Statement of Cash Flows
For the year ended December 31, 2017

Cash Flows from Operating Activities

Inflows:
Cash received from customers
Cash received as interest income *
Cash received as dividend income
Outflows:
Cash paid for cost of goods sold *
Cash paid for selling expenses
Cash paid for general & administrative expenses
Cash paid for interest (including interest on capital leases)
Cash paid for income taxes
Cash that would have been paid for taxes except for “excess tax deduction” related to stock based compensation
Net cash provided by (or used by) operating activities

Cash Flows from Investing Activities

Inflows:
Cash received from sale of property, plant, & equipment
Cash received from sale of investments
Cash received from repayment of note receivables
Outflows:
Cash paid to acquire property, plant, and equipment
Cash paid to acquire investments
Cash paid out as a loan to borrowers
Net cash provided by (or used by) investing activities

Cash Flows from Financing Activities

Inflows:
Cash received as proceeds from issuance of debt
Cash received as proceeds from issuance of stock
Cash received as proceeds from reissuance of treasury stock
Outflows:
Cash paid to repay debt (principal payment)
Cash paid on principal related to capital leases
Cash paid to reacquire stock (purchase treasury stock)
Cash paid as dividends
Cash retained due to “excess tax deduction” related to stock options
Net cash provided by (or used by) financing activities

Net increase (decrease) in cash

Beginning cash and cash equivalents balance
= Ending cash and cash equivalents balance

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