The Statement

of Cash Flows

Accountancy, Business and Management 2

The Statement of Cash Flows

• The Statement of Cash Flows provide

information about cash receipts and cash
payments of an entity duting a period

• Cash is an important asset. It is an account

affected by many transactions. The debit and
credit side of the cash account generally
represent cash receipts and cash
disbursements, respectively.
The Statement of Cash Flows

• Cash receipts may come from (1) cash sales

to customers, (2) collection of customer
accounts, (3) loans and other borrowings,
and (4) owner’s contributions. On the other
hand, cash disbursements may be for
payments of (1) business expenses, (2)
purchases of inventories and other assets (3)
liabilities to creditors, and (4) dividends to
owners.
The Statement of Cash Flows

• SCF is the financial statement that explains

the net change in cash for the year. Like the
SCI and SCE, the SCF is dated “for the year
ended”. The statement shows the
transactions for the year that reconciles the
beginning balance of cash to its year-end
balance.
The Statement of Cash Flows

SCP provides users

1. a basis to evaluate the ability of the entity
to generate cash
2. an information on how the entity generates
cash from operations, borrowings, from
investors, form sales of noncurrent assets
3. an information on how the entity uses cash
4. an information to determine the liquidity
and solvency of the entity
The Statement of Cash Flows

5. an information on estimating future cash

inflows and outflows
6. an information for evaluating the
relationship between cash flow and
profitability.
 Elements of Cash Flows

The SCF reports cash flow transactions during the

year classified by operating, investing, and
financing activities. Operating Activities are
related to the main revenue-producing activities
of the business. Cash transaction related to
acquisition and disposal of long-term assets such
as property, plant, and equipment, and
intangible assets are classified as Investing
activities. Finally, cash transactions with equity
owner’s and creditors are reported as Financing
The Statement of Cash Flows

1. Operating Activities
Cash flows from operating activities are
primarily derived from the main revenue-
producing activities of the business. This
means that the transactions reported in this
section represents the cash components of
the events that enter into the determination
of net income in the SCI.
The Statement of Cash Flows

1. Operating Activities
Cash flows from operations reveals the
present ability of the company to generate
cash from its operations. This is an important
figure to the readers of financial statement.
Positive cash flows from operations suggests
that there is excess cash that can be used to
purchase long-term assets, pay debts or
distribute to owners.
The Statement of Cash Flows

1. Operating Activities
The following are examples of cash flow
transactions reported under operating
activities:
a. Cash received from customers (cash
receipts from sales of goods and rendering of
services).
b. Cash received from fees, commissions, and
other income
The Statement of Cash Flows

1. Operating Activities
The following are examples of cash flow
transactions reported under operating
activities:
c. Cash payments to suppliers
d. Cash payments to employees
e. Cash payments for other operating
expenses
f. Interest payments
The Statement of Cash Flows

2. Investing Activities
Cash flows from investing activities is the
second section of the SCF. Reported within
this classification are cash used for acquisition
of property, plant, and equipment, intangible
assets and other long-term assets as well as
cash proceeds from the disposals of such long-
term assets. Cash flow from operations
reports the current ability of the business to
generate cash from its operations.
The Statement of Cash Flows

2. Investing Activities
The following are examples of cash flow
transactions reported under investing activities:
a. Cash payments to acquire property, plant,
and equipment, intangibles and other long-
term assets.
b. Cash receipts from sale of property, plant, ad
equipment, intangibles and other long-term
assets.
The Statement of Cash Flows

2. Investing Activities
The following are examples of cash flow
transactions reported under investing activities:
c. Cash loans made to other parties (long-term
note receivable).
d. Cash collection on long-term note receivable.
The Statement of Cash Flows

3. Financing Activities

The last section of SCF is cash flow from

financing activities. This section reports cash
received and cash paid to equity owners and
long-term creditors. Below are examples of
cash flow transactions reported under financing
activities:
The Statement of Cash Flows

3. Financing Activities
a. Cash received from issuing common shares
(or capital contributions from owners).
b. Cash received from issuing notes or getting a
long-term loan from a bank.
c. Cash dividends distributed to shareholders.
d. Cash withdrawals of owners.
e. Cash payment for principal of long-term loan.
The Statement of Cash Flows

Preparation of Statement of Changes in Equity

The Statement of Cash Flows contains:
A. The Heading
1. Name of the Business John Lee Trading
2. Title of the Report Statement of Cash Flows
3. Date of the Report For the period ended December 31, 2019
4.Currency (in Philippine Peso)

B. Cash flows from Operating Activities

C. Cash flows from Investing Activities
D. Cash flows from Financing Activities
The Statement of Cash Flows

Direct Method and Indirect Approach of SCF

Firms may use one of two methods prescribed

by the FASB:
1. Direct Method
2. Indirect Method
Two Methods Prescribed by
the FASB:
The Direct Method shows cash collections from
customers, interest and dividends collected, other
operating cash receipts, cash paid to suppliers and
employees, interest paid, taxes paid and other
operating cash payments. While, the indirect
method starts with net income and adjusts for
deferrals; accruals; noncash items, such as
depreciation and amortization; and non-operating
items, such as gains and losses on asset sales. In
this lesson, we will focus on direct method.
Sample Statement of Cash Flows
under the Direct Method
Two Methods Prescribed by
the FASB:

The Direct Method shows cash collections from

customers, interest and dividends collected, other
operating cash receipts, cash paid to suppliers and
employees, interest paid, taxes paid and other
operating cash payments. While, the indirect
method starts with net income and adjusts for
deferrals; accruals; noncash items, such as
depreciation and amortization; and non-operating
items, such as gains and losses on asset sales. In
this lesson, we will focus on direct method.
The Statement of Cash Flows

T-account of Cash
The Statement of Cash Flows
The Statement of Cash Flows