Statement of Cash Flows

 Presents information on the inflows and outflows of

cash and cash equivalents
Statement of Cash Flows

 Transactions causing a movement in the cash and
cash equivalents in the statement of cash flows are
classified under 3 types of activities:
 Operating Activities
 Investing Activities
 Financing Activities
 Operating Activities

 All transactions and other events that enter in
determination of income in the profit or loss
 Examples of these transactions are:
 Collections from customers
 Payments to suppliers
 Payments to employees for wages and salaries
 Payments to government for taxes
 Payments to lenders for interests
 Investing Activities

 Cash transactions affecting assets not normally
identified with the normal operating cycle.
 Examples of these transactions are:
 Granting of non-trade loans and collecting them
 Acquisition and disposal of investments in non-
current financial assets
 Acquisition and disposal of property, plant and
equipment and intangible assets
 Financing Activities

 Cash transactions affecting the non-trade liabilities
and shareholders’ equity.
 Examples of these transactions are:
 Issuance of debt
 Repayment or settlement of debt obligations
 Payments of dividends
 Purchase of treasury shares
 Issuance of share capital
Statement of Cash Flows


*Non-cash activities significantly affect the assets and

liabilities are not presented on the face of the statement
of cash flow but may be disclosed in the notes to the
financial statements.*
Methods of Presenting
Cash Flow from
Operating Activities

 Methods of Presenting Cash Flow
from Operating Activities

 Direct Method  Indirect Method
 Enumerates major  Presents cash flow from
classes of gross operations by reconciling
operating cash receipts profit or loss before
and disbursements for interest and income tax to
operations. operating cash flows.
 Reconstructions are  Adjustments are made for
made based on Income income and expenses not
Statement and changes involving cash receipts or
in account balances in cash payments.
the Balance Sheet.
 Methods of Presenting Cash
Flow from Operating Activities

 Indirect Method - Examples of non-cash operating
income and expenses:
 Depreciation and amortization
 Gains from sale of non-cash assets
 Losses from sale of non-cash assets
 Increases and decreases in accounts receivable
 Increases and decreases in inventories
 Increases and decreases in prepaid expenses
 Increases and decreases in accounts payable
 Increases and decreases in accrued expenses
 Methods of Presenting Cash
Flow from Operating Activities

Indirect Method in Operating Activities
Profit before interest and income tax P000
Add (deduct) items not involving cash:
Depreciation 00
Amortization of intangibles 00
Gains (00)
Losses 00
(Increase) decrease in net Accounts Receivable 00
(Increase) decrease in Inventories (00)
(Increase) decrease in Prepaid Expenses (00)
Increase (decrease) in Accounts Payable 00
Increase (decrease) in Accrued Expenses (00)
Cash flow from operations before interest and income tax P000
 Direct Method
ABC Corporation
Statement of Cash Flows
For the Year Ended December 31,2019
Cash flow from operating activities
Collections from customers for goods sold 1,030,000
Collections of interest revenue 80,000
Collections of commission revenue 22,000
Payment to suppliers (356,000)
Payment to employees for salaries (119,000)
Payment for supplies (22,000)
Payment of utilities (48,000)
Payment of other operating expenses (12,000)
Cash flow from operations before interest and income tax 575,000
Payment of interest (80,000)
Payment of income tax (71,750)
Net cash flow from operating actiivities 423,250
Cash flow from investing activities
Purchase of equipment (1,550,000)
Cash flow from financing activities
Payyment of notes payable to bank (200,000)
Issue of share capital 1,400,000
Payment of dividends (128,000)
Net cash flow from financing actiivities 1,072,000
Increase (Decrease) in cash (54,750)
Cash balance, January 1, 2018 150,000
Cash balance, December 31, 2018 95,250
Indirect Method
ABC Corporation
Statement of Cash Flows
For the Year Ended December 31,2019
Cash flow from operating activities
Profit before interest and income tax 375,000
Adjustments for non-cash items:
Depreciation 144,000
Decrease in trade receivables 30,000
Increase in inventories (20,000)
Decrease in supplies on hand 1,000
Increase in trade payables 44,000
Increase in salaries payables 1,000
Cash flow from operations before interest and income tax 575,000
Payment of interest (80,000)
Payment of income tax (71,750)
Net cash flow from operating actiivities 423,250
Cash flow from investing activities
Purchase of equipment (1,550,000)
Cash flow from financing activities
Payyment of notes payable to bank (200,000)
Issue of share capital 1,400,000
Payment of dividends (128,000)
Net cash flow from financing actiivities 1,072,000
Increase (Decrease) in cash (54,750)
Cash balance, January 1, 2018 150,000
Cash balance, December 31, 2018 95,250