Chapter 6 Statement of Cash Flows

Related standard: PAS 7 Statement of Cash Flows

Learning Objectives
• Define the following: (1) Operating activities, (2) Investing
activities, and (3) Financing activities.
• State the classification of the following in a statement of cash
flows: (a) dividends received, (b) dividends paid, (c) interest paid
and (d) interest received.
• Prepare a statement of cash flows presenting cash flows from
operating activities using (a) direct method and (b) indirect
method.
Statement of Cash Flows

• A statement of cash flows is a component of financial statements

that provides information about the historical changes in cash and
cash equivalents of an entity by classifying cash flows during the
period according to
1. Operating activities,
2. Investing activities, and
3. Financing activities.
Core principle
Activities

1. Operating activities include transactions that enter into the

determination of profit or loss. These transactions normally affect
income statement accounts.

2. Investing activities include transactions that affect long-term

assets and other non-operating assets.

3. Financing activities include transactions that affect equity and

non-operating liabilities.
Examples of cash flows from Operating Activities

1. Cash receipts from the sale of goods and the rendering of services;
2. Cash receipts from royalties, fees, commissions and other revenue;
3. Cash payments to suppliers for goods and services;
4. Cash payments to and on behalf of employees;
5. Cash receipts and cash payments of an insurance entity for premiums
and claims, annuities and other policy benefits;
6. Cash payments or refunds of income taxes unless they can be
specifically identified with financing and investing activities; and
7. Cash receipts and payments from contracts held for dealing or
trading purposes (e.g., cash payments for purchases of and cash
receipts from sale of financial assets and financial liabilities that are
held for trading).
Examples of cash flows from Investing
Activities

1. Cash payments for the acquisition and subsequent capitalizable costs for
property, plant and equipment, intangibles and other long-term assets.
2. Cash receipts from sales of property, plant and equipment, intangibles and other
long-term assets;
3. Cash payments to acquire equity or debt instruments of other entities and
interests in joint ventures (other than payments for instruments considered as
cash equivalents or held for dealing or trading purposes);
4. Cash receipts from sales of equity or debt instruments of other entities and
interests in joint ventures (other than receipts for those instruments considered
to be cash equivalents and those held for dealing or trading purposes);
5. Cash advances and loans made to other parties and repayments thereof (other
than advances and loans made by a financial institution).
Examples of cash flows from Financing Activities

1.Cash proceeds from issuing shares or other equity instruments;

2.Cash payments to owners to acquire or redeem the entity’s shares;
3.Cash proceeds from issuing debentures, loans, notes, bonds,
mortgages and other short or long-term borrowings;
4.Cash repayments of amounts borrowed; and
5.Cash payments by a lessee for the reduction of the outstanding
liability relating to a finance lease.
Interests and Dividends
Reporting cash flows from operating
activities
1. Direct method - shows each major class of gross cash receipts and
gross cash payments.

2. Indirect method - adjusts accrual basis profit or loss for the effects
of changes in operating assets and liabilities and effects of non-
cash items.
Indirect method
 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

END