STATEMENT OF CASH FLOWS

 It provides information about the cash receipts and cash payments of an entity during a period. It is a
formal statement that classifies cash inflows and cash outflows into operating, investing and financing
activities.

OPERATING ACTIVITIES

 It involves providing services, and producing and delivering of goods.

 Activities of an entity related to their main revenue generating activities of providing goods and services.

INVESTING ACTIVITIES

 Includes making and collecting loans, acquiring and disposing of investments in debt or equity securities,
and obtaining and selling property and equipment and other productive assets.
 Activities of an entity related to sale and purchase of long-term assets and other investments.

FINANCING ACTIVITIES

 Includes obtaining resources from owners and creditors.

 Activities of an entity related to acquisition of funding for the use of the entity.
o (paano nagkakaroon ng pera ang business na hindi tungkol sa pagbebenta ng product or pagrender
ng service)

EXAMPLES OF ACTIVITIES

CASH INFLOW CASH OUTFLOW

OPERATING  Cash received from sales and  Payments to suppliers
ACTIVITIES service revenue  Payment of operating expenses
(Net income activities)  Collection of accounts like salaries, rent, utilities, and
receivables taxes.
INVESTING  Cash proceeds from selling  Payments for the purchase of
ACTIVITIES productive assets like property, productive assets like property,
(Noncurrent assets plant, and equipment plant and equipment
activities)  Cash proceeds from selling  Payments to acquire investments
investments in equity securities in equity securities
of other companies
FINANCING  Cash investments by the owner  cash withdrawal by the owner
ACTIVITIES  Cash proceeds from issuance of  payments of cash dividends to
(Noncurrent liabilities share capital shareholders
and equity activities)  cash proceeds from long-term  payments of long-term borrowing
borrowing (only the principal amount)

The cash flow statement can be prepared using either the direct or indirect method. The cash flow from financing
and investing activities’ sections will be identical under both the indirect and direct method.

Under the direct method, the only section of the statement of cash flows that will differ in the presentation is the
cash flow from the operations section. The direct method lists the cash receipts and cash payments made during the
accounting period. The cash outflows are subtracted from the cash inflows to calculate the net cash flow from
operating activities, before the net cash from investing and financing activities are included to get the net cash
increase or decrease in the company for that period of time.
Problem 1. Direct Method Statement of Cash Flows

Anya Forger established her own service company. She invested 2,000,000 to open the

business and has purchased some computer equipment worth 120,000 and office furniture worth

80,000. During the year, 500,000 revenues were earned, 200,000 of which were on account.

Salaries paid to employees amounted to 150,000, office rent payment is 40,000, and utilities paid

amounted to 30,000. Receivables collected amounted to 70,000. The owner withdrew 100,000 for

a personal emergency. At the time when the carrying value of the furniture was 70,000, Anya sold it for 75,000 cash.

CASH
Investment by the owner (FA) 2,000,000 Purchase of equipment (IA) 120,000
Cash received from customers (OA) 300,000 Purchase of furniture (IA) 80,000
Collection of receivables (OA) 70,000 Salaries expense (OA) 150,000
Sale of office furniture (IA) 75,000 Rent expense (OA) 40,000
Utilities expense (OA) 30,000
Withdrawal by the owner (FA) 100,000
Total debit 2,445,000 Total credit 520,000
Balance 1,925,000

Journal Entries
Cash 2,000,000
Capital 2,000,000

Equipment 120,000
Cash 120,000

Furnitur
e 80,000
Cash 80,000

200,00
Cash 300,000 Accounts Receivable 0
Service Revenue 300,000 Service Revenue 200,000

Salaries Expense 150,000

Cash 150,000

Rent Expense 40,000

Cash 40,000

Utilities expense 30,000

Cash 30,000
Cash 70,000
Accounts Receivable 70,000

Drawing 100,000
Cash 100,000

Cash 75,000
Accumulated Depreciation 10,000
Furniture 80,000
Gain on sale of asset 5,000

ANYA SERVICE COMPANY

STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED

Cash flows from operating activities

Cash received from service revenue 300,000
Payment of salaries -150,000
Payment of rent -40,000
Payment of utilities -30,000
Receivables collected 70,000  
Net cash from operating activities 150,000

Cash flows from investing activities

Purchase of equipment -120,000
Purchase of office furniture -80,000
Proceeds from sale of furniture 75,000  
Net cash from investing activities -125,000

Cash flows from financing activities

Investment by the owner 2,000,000
Withdrawal by the owner -100,000  
Net cash from financing activities 1,900,000

Net cash flow 1,925,000

add: beginning of the year 0
Cash, end 1,925,000