Statement of Cash Flows

Operating activities

Investing activities

Financing activities
 Operating activities
• Cash flows derived primarily from principal revenue producing
activities
Examples:
a. Cash receipts from sale of goods and rendering services
b. Cash receipts from royalties, rental, fees and commissions and
other revenue
c. Cash payments to suppliers for goods and services
d. Cash payments for selling, administrative and other expenses
e. Cash receipts and cash payments of an insurance enterprise for
premiums and claims, annuities and other policy benefits
f. Cash payments or refunds of income taxes unless they can be
specifically identified with financing and investing activities
g. Cash receipts and payments for securities held for dealing or
trading purposes
 Investing activities
• Cash flows derived from the acquisition and disposal of long-term assets and other
investments not included in cash equivalent
Example:
a. Cash payments to acquire property, plant and equipment, intangibles and other
long-term assets.
b. Cash receipts from sales of property, plant and equipment, intangibles and other
long-term assets
c. Cash payments to acquire equity or debt instruments of other entities and
interests in joint venture
d. Cash receipts from sales of equity or debt instruments of other entities and
interests in joint venture
e. Cash advances and loans to other parties (other than advances and loans made by
financial institution)
f. Cash receipt from repayment of advances and loans made to other parties
g. Cash payments for future contract, forward contract, option contract and swap
contract
h. Cash receipts from future contract, forward contract, option contract and swap
contract
 Financing Activities

• Cash flows derived from equity capital and

borrowings of the entity
Example:
a. Cash receipts from issuing shares or other equity
instruments (issuance of ordinary and preference
shares)
b. Cash payments to owners to acquire or redeem the
enterprise’s shares (payment for treasury stock)
c. Cash receipts from issuing debentures, loans,
notes, bonds, mortgages, 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 liability relating to a finance lease.
 Noncash transactions

a. Acquisition of asset either by assuming

directly related liability or by means of
finance lease
b. Acquisition of asset by means of issuing
share capital or bonds payable
c. Conversion of debt to equity, for example
conversion of bonds payable to share capital
d. Conversion of preference share to ordinary
share
 Computation of collections

Trade accounts and notes receivable – beg xx

Add: Sales (accrual basis) xx
Total xx
Less: Trade accounts and notes receivable – end xx
Collection of accounts and notes receivable xx
 Computation of payments to merchandise
creditors
Trade accounts and notes payable – beg xx
Add: Purchases (accrual basis) xx
Total xx
Less: Trade accounts and notes payable – end xx
Payment to merchandise creditors xx
 Computation of payments for expenses
Expenses (accrual) xx
Add: Prepaid expense – end xx
Accrued expense – beginning xx
Total xx
Less: Prepaid expense – beginning xx
Accrued expense– end xx xx
Expenses paid xx
 Computation of collection of other income
Income other than sales (accrual) xx
Add: Deferred income – end xx
Accrued income – beginning xx
Total xx
Less: Deferred income – beginning xx
Accrued income – end xx xx
Expenses paid xx
Direct method – operating activities
Cash received from customers xx
Rent received xx
Cash payments to merchandise creditors xx
Salaries paid xx
Insurance paidxx
Other expenses paid xx
Net cash provided by operating activities xx
 Indirect method – operating activities
1. All increases in trade noncash current assets are deducted from net income.
2. All decreases in trade noncash current assets are added to net income.
3. All increases in trade current liabilities are added to net income.
4. All decreases in trade current liabilities are deducted from net income.
5. Depreciation, amortization and other noncash expenses are added back to net
income to eliminate the effect they had on net income.
6. Any gain on disposal of property or gain on early retirement of nontrade liabilities
is included in net income but it is a nonoperating item. This is deducted from net
income.
7. Any loss on disposal of property or loss on early retirement of nontrade liabilities is
deducted from net income but this is a nonoperating item. This is added back to
net income.