STATEMENT

OF CASH
FLOWS
LEARNING
OBJECTIVES

AT THE END OF TH E LE SSON, TH E

LEA RNE RS SHO ULD B E A BLE TO:

•Know the different components that comprise the statement

of cash flows.
•Prepare the statement of cash flows
Statement of Cash Flows
It summarizes the cash activities of the business
by classifying cash inflows and
cash outflows into operating, investing and
financing activities.
 ACTVITIES
ACCORDING TO
COMPONENTS OF
CASH FLOWS O P E R AT I N G
the cash inflows and the cash
outflows arising form the normal
operation of the business

INVESTING
The cash inflows and cash outflows
from the purchase and sale of property
and equipment.

FINANCING
The cash inflows and the cash
outflows from the owners and
creditors of the business.
 OP ERAT ING

DIRECT ACTI VIT IE S

METHOD

THE ENTITY'S NET CASH PROVIDED BY (USED IN)

OPERATING ACTIVITIES IS OBTAINED BY ADDING THE
INDIVIDUAL OPERATING CASH INFLOWSS AND THEN
SUBTRACTING THE INDIVIDUAL OPERATING CASH
OUTFLOWS
 O P E R AT I N G INVESTING FINANCING

INFLOWS INFLOWS INFLOWS

• Receipts from sale of goods • Receipts from sale of property • Receipts from investment of
and performance of services  and equipment owners
• Receipts from fees, • Receipts from collecion of • Receipts from issuance of
commissions, and other notes receivable notes payable
revenues

OUTFLOWS OUTFLOWS OUTFLOWS

• Payments to suppliers
• Payments to employees
• Payments for taxes
• Payments for Interest Expense
• Payments for other operating
expenses
• Payments to acquire property
and equipment
• Payments to make loans to
others generally in the forms of
notes receivable.
• Payments to owners in the
form of withdrawal
• Payments to settle notes
payable.
Exa m pl e . R en Re n M e r cha nd i si ng s t a rt e d
bus i ne ss l as t Oc t obe r. T he fol l owi ng a re i t s
t r ans a c t i ons.
• Additional investment in the business, P22,200
• Proceeds of sale of equipment, P15,000
• Collection of interest, P9,000
• Collection from customers, P315,800
• Proceeds of bank loan, P200,000
• Proceeds from sale of furniture, P8,000
• Payment of operating expenses, P145,000
• Collection of dividends, P12,000
• Cash withdrawal of owner, P30,000
• Payment of interest, P6,000
• Collection of rent, P30,000
• Purchase of furniture, P31,000
• Payment of bank loan, P150,000
• Additional investment in the business, P22,200 - FINANCING
• Proceeds of sale of equipment, P15,000 - INVESTING
• Collection of interest, P9,000 - OPERATING
• Collection from customers, P315,800 - OPERATING
• Proceeds of bank loan, P200,000 - FINANCING
• Proceeds from sale of furniture, P8,000 - INVESTING
• Payment of operating expenses, P145,000 - OPERATING
• Collection of dividends, P12,000 - OPERATING
• Cash withdrawal of owner, P30,000 - FINANCING
• Payment of interest, P6,000 - OPERATING
• Collection of rent, P30,000 - OPERATING
• Purchase of furniture, P31,000 - INVESTING
• Payment of bank loan, P150,000 - FINANCING
 OP ERAT ING
INDIRECT ACTI VIT IE S

METHOD

IT DERIVES THE NET CASH PROVIDED BY (USED IN)

OPERATING ACTIVITIES BY ADJUSTING PROFIT FOR
INCOME AND EXPENSE ITEMS NOT RESULTING FROM
Example:
CASH TRANSACTIONS.
• Increases in accounts receivable from sale of services or goods.
• Increase in salaries payable.
 OP ERAT ING
INDIRECT ACTI VIT IE S

METHOD
EXAMPLE
ADDITIONAL
INFORMATION

• Profit- 100,000
• Depreciation
• Expense for the Year, P50,000
• Disposal of Equipment at book value, P80,000
• Equipment was acquired for cash, P40,000
• Payments to acquire bonds as long-term investment,
P20,000
• Issued ordinary shares for cash, P100,000
• Declared and paid cash dividends, P30,000
PROCESS
• Compute the change in account balances.
PROCESS
2. To determine the cash flows from operations, convert the accrual profit to cash
profit using the formula.
PROCESS
3. Analyze the long-term assets to identify the cash flow effects of investing
activities.

Cash  80,000
  Equipment  80,000

Equipment  40,000
  Cash  40,000

Long-term Investments  20,000

  Cash  20,000
PROCESS
4. Analyze the long-term debt and shareholders’ equity to ascertain the cash flow
effects of financing transactions.

Cash  100,000
  Ordinary Shares  100,000

Retained Earnings  30,000

  Cash  30,000
PROCESS
5. Prepare the formal statement of cash flows.
QUESTIONS?