 STATEMENT OF CASH FLOW – a component of
financial statements summarizing the operating,
investing and financing activities of an entity.
 It provides information about the cash
receipts and cash payments of an entity
during a period.
 Receipts – cash inflow
 Payments – cash outflow
 CASH EQUIVALENT – are 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.
 Examples of cash equivalents (Valix et al,
2020)
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 – are the cash flows
derived primarily from the principal revenue
producing activities of the entity.
 Operating activities generally result from
transactions and other events that enter
into the determination of net income or
loss.
 Assets
 Interest payments to lenders are classified
as Operating activities.
 Examples of cash flows from operating
activities are:
• Cash receipts from sale of goods and
rendering of services
• Cash receipts from royalties, rental, fees,
commissions and other revenue
• Cash payments to suppliers for goods and
services
• Cash payments for selling, administrative and
other expenses
• Cash receipts and cash payments of an
insurance entity for premiums and claims,
annuities and other policy benefits
• Cash payments or refunds of income taxes
unless specifically identified with financing and
investing activities
• Cash receipts and payments for securities held
for trading
 Cash flows arising from the purchase and sale of
dealing or trading securities are 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.
 Include making and collecting loans;
acquiring and disposing of investment in
debt or equity securities; and obtaining and
selling of property and equipment and
other productive assets.
 Liabilities
 Interest received may be classified as
investing cash flow because it is a return on
investment.
 Examples of cash flows from investing
activities • Cash payments to acquire property,
plant and equipment, intangible and other long-
term assets.
• Cash receipts from sales of property, plant
and equipment, intangible and other long-term
assets.
• Cash payments to acquire equity or debt
instruments of other entities (current and long-
term investments)
• Cash receipts from sales of equity or debt
instruments of other entities
• Cash advances and loans to other parties
other than advances and loans made by
financial institution.
• Cash receipts from repayment of advances
and loans made to other parties.
• Cash payments for futures contract, forward
contract, and option contract and swap
contract.
• Cash receipts from futures contract, forward
contract, and option contract and swap contact.
 FINANCING ACTIVITIES – the cash flows derived
from the equity capital and borrowings of the
entity.
 Include obtaining resources from owner’s
and creditors.
 Owner’s equity
 Interest paid may be classified as financing
cash flow
 Divided paid shall be classified as financing
cash flow
 Examples of cash flows from financing
activities • Cash receipts from issuance of
ordinary and preference shares.
• Cash payments to acquire treasury shares.
• Cash receipts from issuing debentures, loans,
notes, bonds, mortgages, and other short or
long term borrowings.
• Cash payments for amounts borrowed.
• Cash payments by a lessee for the reduction
of the outstanding principal lease liability.
 Interest paid and interest received shall be
classified as operating cash flows because such
items enter into the determination of net
income or loss.
 Cash flows arising from income taxes shall be
separately disclosed as cash flows from
operating activities unless they can be
specifically identified with investing and
financing activities.
 DIRECT METHOD – shows each major class of
gross cash receipts and gross cash payments.
  The entity’s net cash provided by operating
activities is obtaining by adding the
individual operating cash inflows and then
subtracting the individual operating cash
outflows.
 INDIRECT METHOD – adjusts accrual basis net
profit or loss for the effects of non-cash
transactions.
 Derives the net cash provided by operating
activities by adjusting profit for income and
expense items not resulting from cash
transaction.
 ACCOUNTING POLICIES – the specific principles,
bases, conventions, rules and practices applied
by an entity in preparing and presenting
financial statements.
 They are essential for a proper
understanding of the information contained
in the financial statements.