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Cash flow
Statement of cash flows

Why is the statement of

cash flows important?

What are the common

issues?

14 November 2016
PwC 1
Statement of cash flows
Profit vs Cash

Net cash flow ≠ Net profit

Profit Cash
Sales Receipts from
customers
Purchases
Payments to supplier
Depreciation
Capital expenditures
Accruals Receipt of dividend
etc. etc.

Income statement is prepared using accrual basis

Cash flow is prepare using cash basis

14 November 2016
PwC 2
Statement of cash flows

Which of the following is the objective of the cash flow

statement?
(a) understand how the entity generates and uses cash
(b) evaluate the changes in net assets and financial structure
(c) enhance comparability of performance of different entities
(d) indicate the amount, timing and certainty of future cash flows
(e) all of the above

Answer: e

14 November 2016
PwC 3
Statement of cash flows – the basics

Cash equivalents
01
Short term, highly liquid investments that are
readily convertible into cash and are subject to
insignificant risk of changes in value.

Non-cash transactions
Non-cash transactions should be 02
separately disclosed and excluded
from the statement of cash flows

03 Classification
There are three main
classification of cash
flow activities

14 November 2016
PwC 4
Definition of cash equivalents

Cash
Short equivalents?
maturity,
1. A term deposit with a 3 month maturity ≤ 3 months


2. A term deposit made on 1 Jan 20x1 – at the year end on 31
Dec 20x1, the remaining maturity is 2 months
Maturity period -


3. A deposit: from date of
• held in an escrow account requiring acquisition
• a third party’s signature to withdraw

Restriction is not
perfunctory
– obtaining third
party’s signature is not
under entity’s control
14 November 2016
PwC 5
Definition of cash equivalents
Bank overdraft

Cash flow statement: Cash and cash equivalent

Bank overdraft
Statement of financial position: Liability
Example:
PT XYZ has two bank accounts in Bank A and Bank B. As at 31 Dec 2015, the
balances are:
– Bank A: saving balance Rp 5,000
– Bank A: overdraft balance Rp 1,000.
PT XYZ shall recognise the balances in its financial statements as follows:

Statements of financial position Statements of cash flows

Current assets or
Cash and cash equivalent Rp 4,000
Cash and cash equivalent Rp 5,000
Current liabilities
Bank overdraft (Rp 1,000)

14 November 2016
PwC 6
Statement of cash flows - Classification

Key principle: Nature of activity

● Principal revenue-producing activities of

Operating the entity
activity ● Other activities that are not investing or
financing activities

Acquisition and disposal of long-term assets

Investing
and other investments not included in cash
activity equivalents

Financing Transactions with owners and loan activity

activity used to fund the business

14 November 2016
PwC 7
Statement of cash flow - Exercise

Which of the following is a non-cash transaction?

(a) Acquisition of assets by means of liability or finance lease
(b) Acquisition of an entity by means of an equity issue
(c) Conversion of debt to equity
(d) All of the above

Answer: d
Investing and financing activities with no cash flows

14 November 2016
PwC 8
Statement of cash flow - Exercise

Cash flow Classification

1. Purchase of inventories Operating

2. Proceed from sale of fixed assets Investing

3. Placement of deposit in bank with 4 months

Investing
maturity period

4. Payment of long term bank loan Financing

Financing - split
5. Lease payments to lessor between capital repayment
and interest charge

14 November 2016
PwC 9
Statement of cash flows
Methods of presenting operating activities
DIRECT METHOD
Cash collected from customers 461,000
Cash paid to purchase inventory (229,000) Report major classes of
Cash paid to employees (65,000) gross operating cash
Cash paid for expenses (34,000) receipts and
Cash flow from operating activities 133,000 payments

INDIRECT METHOD
Net income 100,000
Adjustment for non-cash items:
Depreciation expense 40,000 Profit or loss is
Changes in current assets and adjusted with the
liabilities: non-cash items and
Increase in accounts receivable (23,000) changes in working
Decrease in inventories 12,000 capital
Increase in trade payable 4,000
Cash flow from operating activities 133,000
14 November 2016
PwC 10
Statement of cash flows
Interest and dividend

Operating activities
Interest and
dividends received
Investing activities

Operating activities
Interest and
dividends paid
Financing activities

Apply on a consistent basis from period to period

14 November 2016
PwC 11
Statement of cash flows - Direct method
Example & related accounts
Trade receivables, Inventory, Trade
payables, Accruals, VAT, Income Taxes,
Sales, Cost of sales, Operating expenses, etc

Loan to related parties, Purchase of Fixed

and/or Plantations assets, Investment in
equity, etc

Bank loan, Finance lease payable, Loan from

related party, Capital injection, Payment of
dividend

14 November 2016
PwC 12
Example of calculation
Operating activities using direct method

Cash flow from customers Cash flow for employees

Revenue xxx Employee-related expenses xxx

Add: Add:
Decrease of accounts receivables xxx Payment of pension benefits xxx
Increase of VAT out xxx
Less: Less:
Decrease of customer deposits (xxx) Increase of accrued bonus (xxx)
Receipt from customer xxx Payment to employees xxx

14 November 2016
PwC 13
Example of calculation
Operating activities using direct method

Cash flow for purchase of

Cash flow for tax payment
fixed assets

Current income tax xxx Addition of fixed assets xxx

Add: Less:
Decrease of corporate income Increase in payable for
tax payable xxx purchase of fixed assets xxx

Payment for Corporate Payment for purchase

Income Tax xxx of fixed assets xxx

14 November 2016
PwC 14
Questions?

14 November 2016
PwC 15
 Thank you…!!!

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