CHAPTER 11

STATEMENT OF CASH FLOWS

- Summarizing the operating, investing and financing activities of an entity
- Provides information about the cash receipts and cash payments of an entity during a
period
- Primary purpose is to provide relevant information about cash receipts and cash
payments of an entity during a period
Cash and cash equivalent
Cash – cash on hand and demand deposits
Cash equivalent – 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
- Investments must be acquired three months or less before the date of maturity
Examples of cash equivalent:
a. Three-month BSP treasury bill
b. Three-year BSP treasury bill purchased three months before date of maturity
c. Three-month time deposit
d. Three-month money market instrument or commercial paper

OPERATING ACTIVITIES
- Cash flows derived primarily from the principal revenue producing activities of the entity
Examples include:
a. Cash receipts from sale of goods and rendering of services
b. Cash receipts from royalties, rental fees, 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 entity for premiums and claims,
annuities and other policy benefits
f. Cash payments or refunds of income taxes unless specifically identified with financing
and investing activities
g. Cash receipts and payments for securities held for trading
Trading Securities
- PAS 7, paragraph 15, cash flows arising from the purchase and sale of dealing or trading
securities are classified as operating activities
 - Cash advances and loans made by a financial institution are usually classified as
operating activities.

INVESTING ACTIVITIES
- Cash flows derived from the acquisition and disposal of long-term assets and other
investments not included in cash equivalent
Examples:
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
c. Cash payments to acquire equity or debt instruments of other entities
d. Cash receipts from sales 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
g. Cash payments for futures 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 the equity capital and borrowings of the entity
Cash flows that result from transactions:
a. Between the entity and the owners – equity financing
b. Between the entity and the creditors – debt financing
Examples:
a. Cash receipts from issuance of ordinary and preference shares
b. Cash payments to acquire treasury shares
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 principal lease liability
NONCASH TRANSACTIONS
- PAS 7, paragraph 43, provides that investing and financing transactions that do not
require use of cash or cash equivalents shall be excluded from the statement of cash
flows
- Statement of cash flows is strictly a cash concept
Noncash transactions are disclosed separately:
a. Acquisition of asset by assuming directly related liability
b. Acquisition of asset by issuing share capital
c. Acquisition of asset by issuing bonds payable
d. Conversion of bonds payable into share capital
e. Conversion of preference shares into ordinary shares

INTEREST
- PAS 7, paragraph 33, provides that interest paid and interest received shall be classified
as operating cash flows
Alternatively, interest paid may be classified as financing cash flow
Alternatively, interest received may be classified as investing cash flow
For financial institution, interest paid and interest received are usually classified as
operating cash flows

DIVIDENDS
PAS 7, paragraph 33, provides that dividend received shall be classified as operating cash flow
because it enters into the determination of net income
Alternatively, dividend received may be classified as investing cash flow
PAS 7, paragraph 34, dividend paid shall be classified as financing cash flow
Alternatively, dividend paid may be classified as operating cash flow