LOURD JEANILLE C.

COCHING BSMA 2-A

STATEMENT OF CASH FLOWS

A statement of cash flows is a component of financial statements summarizing the operating,

investing and financing activities of an entity. In simple language, the statement of cash flows
provides information about the cash receipts and cash payments of an entity during a period

The primary purpose of a statement of cash flows

To provide relevant information about cash receipts and cash payments of an entity during a period

Cash and cash equivalents

The statement of cash flows is designed to provide information about the change in an entity's cash
and cash equivalents.

Cash comprises cash on hand and demand deposits.

Cash equivalents are short-term highly liquid investments that are readily convertible to known
amount of cash and which are subject to an insignificant risk of change in value.

PAS 7, paragraph 7, provides that an investment normally qualifies as a cash equivalent only when it
has a short maturity of three months or less from date of acquisition. In other words, the investment
must be acquired three months or less before the date of maturity.

Bank overdrafts which are repayable on demand form an integral part of cash management. In these
circumstances, bank overdrafts are included as component of cash and cash equivalents.

Classification of cash flows

Cash flows are equivalents. inflows and outflows of cash and cash The statement of cash flows shall
report cash flows during the period classified as operating, investing and financing activities.

Operating activities

Operating activities are the cash flows derived primarily from the principal revenue
producing activities of the entity. worded, operating Simply activities generally result from
transactions and other events that enter into the determination of net income or loss.

A. Cash receipts from sale of goods

B. Cash receipts from royalties, rental, fees, commissions and other revenue
C. Cash payments to suppliers for goods purchased
D. Cash payments for selling, administrative and other expenses
E. Cash receipts and payments for securities held for trading
F. Cash payment or refund of income taxes unless can be identified specifically with
financing and investing activities.
Investing activities

Investing activities are the cash flows derived from the acquisition and disposal of long-term assets
and other investments not included in cash equivalent.

As a simple guide, investing activities include cash flows from transactions involving nonoperating
assets.

A. Cash payments to acquire property, plant and equipment, intangible asset and other long-
term asset.
B. Cash receipts from sale of property, plant and equipment, intangible asset and other long-
term asset.
C. Cash payments to acquire equity or debt instruments of other entities (current and long-
term investments)
D. Cash receipts from sale of equity or debt instruments of other entities
E. Cash advances and loans to other parties other than advances and loans made by financial
institution
F. Cash receipts from repayment of advances and loans made to other parties.

Financing activities

Financing activities are the cash flows derived from the equity capital and borrowings of the entity.

Otherwise stated, financing activities are the cash flows that result from transactions:

A. Between the entity and the owners- equity financing

B. Between the entity and the creditors - debt financing

As a simple guide, financing activities include the cash from transactions involving non trade
liabilities and equity of an entity.

A. Cash receipts from issuance of ordinary and preference shares.

B. Cash payments to acquire treasury shares
C. Cash receipts from issuing bonds, loans, notes, mortgage and other short or long term
borrowings.
D. Cash payments for amounts borrowed
E. Cash payments by a lessee for the reduction of the outstanding principal lease liability