PAS 7 – CASH FLOWS Cash payments for:

• Acquisition/Redemption of Own
Operating Activities (From principal revenue • Shares
producing activities) • Short or long-term borrowings
Cash receipts from: • Finance lease liability
• Sale of goods and services • Interest expense (alternative)
• Royalties, rental, fee, commissions and • Dividends
other revenue
• Interest Income Cash flows shall be classified in a consistent
• Dividends manner from period to period as either
Cash payments for: operating, investing or financing.
• Purchase of goods and services
• Selling, Administrative and Other ACCRUAL
ITEMS CASH BASIS
Expenses BASIS
• Interest Expense XXXXX Income is Income is
• Dividends (alternative) recognized when recognized when
Cash receipts and payments for: received earned
• Premiums and claims, annuities and regardless of regardless of
other policy benefits by an insurance when earned, when received,
company and expense is and expense is
recognized when recognized when
• Income Taxes (unless specifically
paid regardless incurred
specified with Investing and Financing)
of when incurred. regardless of
• Securities held for trading
when paid.
• Advances, loans and interest income and
Cash sales plus Cash sales plus
expense of a financial institution
Sales collection of sales on account.
trade receivable.
Investing Activities (From acquisition and
Cash purchases Cash purchases
disposal of long-term assets including long- Purchases plus payment to plus purchase on
term investments) trade creditors account
Cash receipts from: Items received Items earned are
• Sale of PPE, Intangibles and Other long- are considered as considered as
Income
term assets other than income income
• Sale of Equity and Debt Instruments sales regardless of regardless of
• Sale of Interest in Joint Ventures when earned. when received.
• Advances and loans to other parties Items paid are Items incurred
• Derivative contracts treated as are treated as
Expense,
• Interest Income (alternative) in general
expense expense
• Dividends (alternative) regardless of regardless of
Cash payments for: when incurred. when paid.
• Purchase of PPE, Intangibles and Other No bad debts are Doubtful
long-term assets recorded accounts are
• Purchase of Equity and Debt Instruments Bad Debts because trade treated as bad
• Purchase of Interest in Joint Ventures receivables are debts.
• Derivative contracts not recognized.

Financing Activities (From equity and

borrowings)
Cash receipts from:
• Issuance of equity instruments
• Issuance of short or long-term
• borrowings
Conversion of Cash Basis to Accrual Basis

Direct Method Computations:

Collection from customers = Sales + A/R Beg.
Bal. - A/R End. Bal.
Payments to suppliers = Cost of Goods Sold +
End. Inventory - Beg. Inventory + Beg.
A/P - End. A/P
Payments for operating expenses = Operating
Expenses + End. Prepaid Exp. Bal. - Beg.
Statement of Cash Flows formats:
Prepaid Exp. Bal. + Beg. Accrued Liab. Bal. -
Direct Method – Format of the operating section
End. Accrued Liab. Bal.
of the statement of cash flows lists the major
Receipt of interest = Interest Revenue + Beg.
categories of cash receipts and disbursements.
Interest Receivable Bal. - End. Interest
Indirect Method – Format of the operating
Receivable Bal.
section of the statement of cash flows starts
Receipt of dividends = Dividend Revenue + Beg.
with the net income and then shows the
Dividend Receivable Bal. - End.
adjustments needed to reconcile the net
Dividend Receivable Bal.
income with the cash flows from operating
Payments to employees = Wages Expense +
activities.
Beg. Wages Payable Bal. - End. Wages
Special Note by me: Remember that this two
Payable Bal.
only differ in Operating Activities. Thus, the
Payments for interest = Interest Expense + Beg.
computation for Investing Activities and
Interest Payable Bal. - End. Interest
Financing Activities in Indirect Method is the
Payable Bal.
same as Direct Method and will not be shown.
Payments for income taxes = Income Tax
Expense + Beg. Income Tax Payable Bal. - End.
Income Tax Payable Bal.
When to add or subtract in the Indirect Method:
Items What to do Why do it
Depreciation,
Depletion, or Non-Cash
Add
Amortization Expenses
of assets
Non-Cash
Gains Subtract
Income
Non-Cash
Losses Add
Expenses
Increase in
current Assets Deducted
Subtract
(except cash from Accrual
and cash Basis Profit
equivalents)
Decrease in Added to
Add
Accrual Basis
current Assets
Profit
Increase in Added to
current Add Accrual Basis
Liabilities Profit
Decrease in Deducted
current Subtract from Accrual
Liabilities Basis Profit

Only those transactions that affected cash and

cash equivalents are reported in the statement
of cash flows. Non-cash transactions are
excluded and disclosed only.