Dela Cruz, Nathaniel Jr.

PAS 7
1. The cash flow statement is a required important financial statement, and it explains changes in
cash and cash equivalents during a period.
2. Cash equivalents are short-term, highly liquid investments subject to insignificant risk of changes
in value.
3. Cash flow statement should classify changes in cash and cash equivalents into operating,
investing, and financial activities.

Operating activities
May be presented using either direct or indirect methods. Direct method shows receipts from
customers and payments to suppliers, employees, government (taxes), etc. The indirect method
begins with accrual basis net profit or loss and adjusts for major non-cash items.

Investing
Disclose separately cash receipts and payments arising from acquisition or sale of property, plant,
and equipment; acquisition or sale of equity or debt instruments of other enterprises (including
acquisition or sale of subsidiaries); and advances and loans made to, or repayments from, third
parties.

Financing
Disclose separately cash receipts and payments arising from an issue of a share or other equity
securities; payments made to redeem such securities; proceeds arising from issuing debentures,
loans, notes; and repayments of such securities.

Cash flows from taxes should be disclosed separately within operating activities, unless they can be
correctly identified with one of the other two headings.

Investing and financing activities that do not give rise to cash flows (a nonmonetary transaction such
as an acquisition of property by issuing debt) should be excluded from the cash flow statement but
disclosed separately.

PAS 32

IAS 32 specifies presentation for financial instruments. The recognition and measurement and the
disclosure of financial instruments are the subjects of IFRS 9 or IAS 39 and IFRS 7 respectively. For
presentation, financial instruments are classified into financial assets, financial liabilities and equity
instruments. Differentiation between a financial liability and equity depends on whether an entity
has an obligation to deliver cash (or some other financial asset). However, exceptions apply. When a
transaction will be settled in the issuer’s own shares, classification depends on whether the number
of shares to be issued is fixed or variable. A compound financial instrument, such as a convertible
bond, is split into equity and liability components. When the instrument is issued, the equity
component is measured as the difference between the fair value of the compound instrument and
the fair value of the liability component. Financial assets and financial liabilities are offset only when
the entity has a legally enforceable right to set off the recognized amounts, and intends either to
settle on a net basis or to realize the asset and settle the liability simultaneously.
PFRS 9

IFRS 9 is effective for annual periods beginning on or after 1 January 2018 with early application
permitted.

IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and
some contracts to buy or sell non-financial items.

IFRS 9 requires an entity to recognize a financial asset or a financial liability in its statement of
financial position when it becomes party to the contractual provisions of the instrument. At initial
recognition, an entity measures a financial asset or a financial liability at its fair value plus or minus,
in the case of a financial asset or a financial liability not at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition or issue of the financial asset or the
financial liability.

Financial assets
When an entity first recognizes a financial asset, it classifies it based on the entity’s business model
for managing the asset and the asset’s contractual cash flow characteristics, as follows:

Amortized cost—a financial asset is measured at amortized cost if both of the following conditions
are met:

the asset is held within a business model whose objective is to hold assets in order to collect
contractual cash flows; and the contractual terms of the financial asset give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal amount outstanding.

Fair value through other comprehensive income—financial assets are classified and measured at fair
value through other comprehensive income if they are held in a business model whose objective is
achieved by both collecting contractual cash flows and selling financial assets.

Fair value through profit or loss—any financial assets that are not held in one of the two business
models mentioned are measured at fair value through profit or loss.

When, and only when, an entity changes its business model for managing financial assets it must
reclassify all affected financial assets.

Adjusted Cash Balance

Balance per books, end XX

Add: Credit Memo XX
Less: Debit Memo (XX)
+/- Book Errors XX
Adjust Balance XX

Balance per bank, end XX

Add: Deposit in Transit XX
Less: Outstanding Checks (XX)
+/- Bank Errors XX
Adjusted Bank Balance XX