STATEMENT OF CASH FLOWS

PREPARED BY: JAM A. MAGALANG, MBE, LPT

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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.
STATEMENT OF
CASH FLOWS

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. The discussion below gives an
overview of some important concepts
involved in the preparation of
the cash flow statement.
 CASH FLOW FROM OPERATING ACTIVITIES

Operating activities generally involved providing

services, and producing and delivering goods.
Cash flows operating activities are generally the
cash effects of transactions and other events that
enter into the determination of profit or loss. This
cash flows can be presented using either the
direct or indirect method.
 CASH FLOW FROM OPERATING ACTIVITIES

Using the DIRECT METHOD the entity’s net cash

provided by (used in) operating activities is
obtained by adding the individual operating cash
inflows and then subtracting the individual
operating cash outflows.
STATEMENT OF CASH FLOWS – DIRECT METHOD

OPERATING ACTIVITIES
 CASH FLOW FROM OPERATING ACTIVITIES

The INDIRECT METHOD derives the net cash

provided by (used in) operating activities by
adjusting profit for income and expense items not
resulting from cash transactions. The adjustments
begins with profit followed by the addition of
expenses and charges that did not entail cash
payments.
 CASH FLOW FROM OPERATING ACTIVITIES

Then, increases in current assets and decreases in

current liabilities involved in the determination of
profit but which not actually increase or decrease
cash, are subtracted from profit. Finally, decreases
in current assets and increases in current liabilities
are added to profit to obtain net cash provide by
(used in) operating activities.
STATEMENT OF CASH FLOWS – INDIRECT METHOD

OPERATING ACTIVITIES
 CASH FLOW FROM OPERATING ACTIVITIES

Cash Inflows
• Receipts from sale of goods and services
• Receipts from royalties, fees, commissions and
other revenues
 CASH FLOW FROM OPERATING ACTIVITIES

Cash Outflows
• Payments to suppliers of goods and services
• Payments to employees
• Payments to taxes
• Payments for interest expense
• Payments for other operating expenses
 CASH FLOW FROM INVESTING ACTIVITIES

Investing activities include making and collecting

loans; acquiring and disposing of investments in
debt or equity securities; and obtaining and selling
of property and equipment and other productive
assets.
 CASH FLOW FROM INVESTING ACTIVITIES

Cash Inflows
• Receipts from sale of property and equipment
• Receipts from sale of investments in debt or
equity securities
• Receipts from collections on notes receivable
 CASH FLOW FROM INVESTING ACTIVITIES

Cash Outflows
• Payments to acquire property and equipment
• Payments to acquire debt or equity securities
• Payments to make loans to others generally in
the form of notes receivable
STATEMENT OF CASH FLOWS

INVESTING ACTIVITIES
 CASH FLOW FROM FINANCING ACTIVITIES

Financing activities include obtaining resources

from owners and creditors.
 CASH FLOW FROM FINANCING ACTIVITIES

Cash Inflows
• Receipts from investments by owners
• Receipts from issuance of notes payable
 CASH FLOW FROM FINANCING ACTIVITIES

Cash Outflows
• Payments to owners in the form of withdrawals
• Payments to settle notes payable
STATEMENT OF CASH FLOWS

FINANCING ACTIVITIES
 ADDITIONAL NOTES

• Beginning Cash balance – this refers to the

ending cash balance of the previous month.
• ”provided by” is used when the balance from
operating/investing/financing is positive.
• “used in” is used when the balance from
operating/investing/financing is negative.