2/20/2023

Statement of
Cash Flows
Philippine Accounting Standards (PAS) 7

Learning Objectives

• Describe the statement of cash flows.

• Differentiate between the following: (1) Operating activities, (2)
Investing activities, and (3) Financing activities.
• State the classifications of the following in a statement of cash
flows: (a) dividends received, (b) dividends paid, (c) interest
paid and (d) interest received.

1
 2/20/2023

Objective of PAS 7

To require the presentation of information about the

historical changes in cash and cash equivalents of an
entity by means of a statement of cash flows, which
classifies cash flows during the period according to
operating, investing, and financing activities.

Statement of Cash Flows

The statement of cash flows provides information

about the sources and utilization (i.e., historical changes)
of cash and cash equivalents during the period.

2
 2/20/2023

Definition of Terms

• Cash – comprises cash on hand and cash in bank.

• Cash Equivalents – are “short-term, highly liquid
investments that are readily convertible to known
amounts of cash and which are subject to an
insignificant risk of changes in values. (PAS 7.6)
• Cash flows – include inflows (sources) and outflows
(uses) of cash and cash equivalents.

Cash Equivalents

• Only debt instruments acquired within 3 months

or less before their maturity date
1-year treasury bill acquired 3 months before
maturity date
90-day money market instrument or commercial
paper
3-month time deposit

3
 2/20/2023

Cash and Cash Equivalents -

Illustration
Entity A had the following balances at December 31, 2021:
Cash on Hand Php 300,000
Cash in Bank 700,000
Cash in 90-day money-market account 500,000
Treasury bill, purchased 12/1/2021,
maturing 2/28/2022 1,600,000
Treasury bond, purchased 3/1/2021,
maturing 2/28/2022 1,000,000
Requirement: How much cash and cash equivalents is reported in
Entity A’s December 31, 2021 statement of financial position?
Cash and Cash Equivalents = Php3,100,000 8

Classification of Cash Flows

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.
9

4
 2/20/2023

Operating Activities

Cash Flows primarily derived form the principal

revenue-producing activities of the entity. (PAS 7.14)
Examples:
a. cash receipts from the sale of goods, rendering of services, or other
forms of income
b. cash payments for purchases of goods and services
c. cash payments for operating expenses, such as employee benefits,
insurance, and the like, and payments or refunds of income taxes
d. cash receipts and payments from contracts held for dealing or
trading purposes
10

10

Investing Activities

Cash Flows involving the acquisition and disposal of Non-

Current Assets and other Investments.
Examples:
a. cash receipts and cash payments in the acquisition and disposal of property,
plant and equipment, investment property, intangible assets and other
noncurrent assets
b. cash receipts and cash payments in the acquisition and sale of equity or debt
instruments of other entities (other than those that are classified as cash
equivalents or held for trading)
c. cash receipts and cash payments on derivative assets and liabilities (other than
those that are held for trading or classified as financing activities)
d. loans to other parties and collections thereof (other than loans made by a
11
financial institution)
11

5
 2/20/2023

Financing Activities

Cash flows from those that affect the entity’s equity

capital and borrowing structure.
Examples:
a. cash receipts from issuing shares or other equity instruments and
cash payments to redeem them
b. cash receipts from issuing notes, loans, bonds and mortgage
payable and other short-term or long-term borrowings, and their
repayments
c. cash payments by a lessee for the reduction of the outstanding
liability relating to a lease. 12

12

Cash flows excluded form

activities section
Cash flows on movements between “cash” and “cash
equivalents”
Bank overdrafts that can be offset to cash forms part of cash
and cash equivalents
Cash flows denomination in a foreign currency are translated
using the spot exchange rate at the date of the cash flows.
Exchange differences are not cash flows. However, the
effect of exchange rate changes on cash and cash equivalents
held or due in foreign currency is reported in the statement of
cash flows in order to reconcile cash and cash equivalents at the
beginning and the end of the period. 13

13

6
 2/20/2023

Statement of Cash Flows

14

14

Interests and Dividends

Entities (except financial institutions) may classify cash

flows on interest and dividends as follows:
Option 2
Cash Flows Option 1 (not applicable to
Financial Institutions)
1. Interest income received Operating Activity Investing Activity
2. Interest expense paid Operating Activity Financing Activity
3. Dividend income received Operating Activity Investing Activity
4. Dividend paid to owners Financing Activity Operating Activity

15

15

7
 2/20/2023

Presentation of 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.

16

16

Direct vs Indirect Method

17

17

8
 2/20/2023

Changes in ownership interest

in subsidiaries
Cash flows arising from acquisitions and disposals of
subsidiaries or other business units resulting to loss or
obtaining of control are classified as investing
activities.
Those that do not result to loss or obtaining of
control are classified as financing activities.

18

18

Disclosures

PAS 7 requires the following disclosures

a. Components of cash and cash equivalents and a
reconciliation of amounts in the statement of cash
flows with the equivalent items in the statement of
financial position.
b. Significant cash and cash equivalents held by the
entity that are not available for use by the group,
together with a management commentary.
19

19

9
 2/20/2023

Disclosures

20

20

10