STATEMENT OF

Lecture on

CASH FLOW Cash and Cash Equivalent

 STATEMENT OF CASH FLOW

A presentation of information about the historical changes in

cash and cash equivalents of an entity, which classifies clas
flows during the period according to operating, investing, and
financing activities. [IAS 7]
 IMPORTANCE OF CASH FLOW

It helps users of financial information see if revenues are

actually translated to cash; if there are any cash investment
made; or if capital in form of cash were raised.
The statement of cash flow focuses
(and tracks) cash inflows and
outflows within the company.
 Is it possible to have positive
cash inflow yet incur net loss?
 EFFECT ON CASH FLOW AND INCOME

Cash Flow Profit/Loss

Php540,000 was invested by the owner.

Received Php45,600 for services rendered.

Paid electricity bill that was previously

received.
CASH FLOW
ACTIVITIES
Operating, Investing and Financing
PRESENTATION OF THE STATEMENT
OF CASH FLOWS

Cash flows must be analyzed between operating, investing and

financing activitieS. [IAS 7.10]
 OPERATING ACTIVITIES

Operating activities are the main revenue-producing activities of the entity

that are not investing of financing activities, so operating cash flows
include cash received from customers and cash paid to suppliers and
employees [IAS 7.14]

+ cash receipts / received / collections from customers

- cash paid to suppliers and employees
- cash disbursements for operating expenses
- (income) taxes are normally classified as operating (unless
identified with investing or financing)
 INVESTING ACTIVITIES

Investing activities are the acquisition and disposal of long-term assets and
other investments that are not considered to be cash equivalents [IAS 7.6]

+ proceeds from sale of property, plant and equipment

+ collections on loans/notes/bonds receivable
- loans granted or notes receivable
- cash paid for purchase of property, plant and equipment
- bought (pain in cash) equiy investments or securities
 FINANCING ACTIVITIES

Financing activities are activities that alter the equity capital and
borrowing structure of the entity [IAS 7.6]

+ proceeds from share issuance

+ cash received from notes/loans payable
- cash dividends paid
- settlement of (long-term) notes/loans
Where do you think we should
classify interest and dividends
(both received and paid)?
Interest and dividends received and paid may
be classified as operating, investing or
financing cash flows, provided that they are
classified consistently from period to period
[IAS 7.31]
 FOR CLASS PURPOSES

Interest received will be included in operating activities.

Interest paid will be included in financing activities
Dividend received will be included in investing activities
Dividend paid will be included in financing activities

Unless otherwise stated.

 Cash flows arising from taxes on income are
normally classified as operating, unless they
can be specifically identified with financing or
investing activities [IAS 7.31]
 DIFFERENCES OF CASH ACTIVITIES

Operating Activities Investing Activities Financing Activities

Cash transactions are

Activities involve fixed
usually found in profit or Activities involving raising
assets and investments
loss of capital or financing
(loans or equity)

Cash activitie arising from Activities arising from last

Activities arising from
normal operations are of cash
having too much cash
involved
 PROBLEM 1

L V IN G
E M S O
PR O B L
Cherry Co. had the following transactions in its first year of operations:

Sales (90% collection in first year) 7,500,000

Disbursements for expenses 6,000,000
Cash purchase for equipment 2,000,000
Proceeds from share issuance 2,500,000
Payments on short-term loans 250,000
Proceeds from short-term loans 500,000
Depreciation on equipment 400,000
Disbursements for income tax 450,000
Bad debt write off 300,000

What is the cash balance at the end of the year?

 PROBLEM 2

L V IN G
E M S O
PR O B L
The following information pertains to Lax Company during the current year:

Income taxes paid 300,000

Dividend received 500,000
Dividend paid 1,000,000
Cash received from customers 9,000,000
proceeds from share issuance 1,500,000
Interest received 200,000
Proceeds from sale of long term investments 2,000,000
Cash paid to suppliers and employees 6,000,000
Interest paid on long-term debt 400,000

(a) What is the net cash provided by operating activities?

(b) What is the net cash provided by investing activities?
(c) What is the net cash provided by financing activities?
PRESENTATION
OF CASH FLOW
Direct and Indirect Method
 DIRECT METHOD
The direct method shows each major class of
gross receipts and gross cash payments. The
operating cash flows section of the statement
of cash dlows under the direct method would
appear something like this:
STATEMENT OF CASH FLOW
Direct Method
 INDIRECT METHOD
The indirect method adjusts accrual basis net
profit or loss for the effects of non-casn
transactions. The operating cash flow section of
the statement of cash flows under the indirect
method would appeat something like this:
Both investing and financing activities are
prepared using the direct method.
The components of cash and cash equivalents
should be disclosed, and a reconciliation
presented to amounts reported in the
statement of financial position. [IAS 7.45]
 PROBLEM 3

L V IN G
E M S O
PR O B L
Prepare the Statement of Cash Flows using the direct method. Year ending
is September 30, 2020.

Cash balance, Oct. 1, 2019 125,700

Cash Sales 844,500
Collection of Trade account and notes 1,527,600
Sale of second-hand computer 19,500
Proceeds of loan obtained from bank 500,000
Payment of trade accounts and notes 952,300
Payment of various operating expenses and 716,600
advances

Payment of newly-acquired laptop 85,000

Payment of principal amount of loan 900,00
Withdrawals by owner 100,000
REFERENCES:
IAS 1 - Presentation of Financial Statements
Retrieved from https://www.iasplus.com/en/standards/ias/ias1

IAS 7 - Statement of Cash Flows

Retrieved from https://www.iasplus.com/en/standards/ias/ias7

Peralta, J.F., Valix, C.A., & Valix, C.T. (2015). Financial Accounting Volume I, Part I.
GIC Enterprises & Co., Inc. Manila, Philippines