THE STATEMENT OF CASH

FLOWS
 Cash Basis VS. Accrual Basis
ITEM CASH BASIS ACCRUAL BASIS
Sales Cash plus collection of trade Cash sales plus sales on
receivables account
Purchases Cash purchases plus Cash plus purchases on
payments to trade creditors account
Income other than sales Items received are Items earned are
considered as income considered as income
regardless of when earned regardless of when
received
Expenses, in general Items paid are treated as Items incurred are treated
expenses regardless of when as expenses regardless of
incurred when paid
Depreciation Normally provided Normally provided

Bad debts No bad debts since trade Doubtful accounts are

receivables are not treated as bad debts
recognized
 The Statement of Cash Flows

OPERATING INVESTING FINANCING

• Cash effects of • Cash flows • Cash flows
transactions from from equity
that enter into acquisition capital and
the and disposal of borrowings of
determination long term the entity
of profit or loss assets and
• Direct/indirect other
method investments
not included in
cash
equivalent
 Operating Activities: Direct Method

Cash collected from customers xx

Payment to suppliers (xx)
Payment to employees (xx)
Payment for office rent (xx)
Other expenses paid (xx)
Cash generated from operations xx
Interest paid (xx)
Income tax paid (xx)
Net cash provided by(used in) operating activities xx
EXAMPLE:DIRECT METHOD
 Operating Activities: Indirect Method

All increases in trade noncash current assets are

deducted from net income
All decreases in trade noncash current assets are
added to net income
All increases in trade current liabilities are added to
net income
All decreases in trade current liabilities are deducted
from net income
Depreciation, amortization and other noncash
expenses are added back to net income
 Operating Activities: Indirect Method

Gain on disposal of property or gain on early

retirement of nontrade liabilities is deducted from
net income.
Loss on disposal of property or loss on early
retirement of nontrade liabilities is added to net
income.
EXAMPLE: INDIRECT METHOD
COMPREHENSIVE EXAMPLE
COMPREHENSIVE EXAMPLE
Exercise
Answer