ENT

T EM
STA
OW
H FL
CA S
WHY THER IS A NEED OF CASH FLOW STATEMENT

RECALL THE CONCEPT OF FINANCIAL STATEMENTS

INCOME BALANCE CASH FLOW
STATEMENT SHEET STATEMENT

FINANCIAL
FINANCIAL FINANCIAL POSITION AND
PERFORMANCE POSITION PERFORMANCE

ACCRUAL COST CASH BASIS

SYSTEM PRINCIPLE
 Sources of Cash Flow

Operating Investing Financing

Inflow Out flow Inflow Out flow

Inflow Out flow
Classification
Classification of
of Cash
Cash Flows
Flows

Types of Cash Inflows and Outflows Illustration 13-1

SO 2 Distinguish among operating, investing, and financing activities.

Classification
Classification of
of Cash
Cash Flows
Flows

Types of Cash Inflows and Outflows Illustration 13-1

SO 2 Distinguish among operating, investing, and financing activities.

Usefulness
Usefulness and
and Format
Format

Usefulness of the Statement of Cash Flows

Provides information to help assess:

1. Entity’s ability to generate future cash flows.

2. Entity’s ability to pay dividends and obligations.

3. Reasons for difference between net income and net cash

provided (used) by operating activities.

4. Cash investing and financing transactions during the

period.

SO 1 Indicate the usefulness of the statement of cash flows.

Classification
Classification of
of Cash
Cash Flows
Flows

Typical
Company
Product Life
Cycle

LO 2 Identify the major classifications of cash flows.

Usefulness
Usefulness and
and Format
Format

Classification of Cash Flows

Operating Activities

Investing Activities

Financing Activities
Income
Statement Generally
Items Non-Current
Generally
Asset Items
Non-Current
Liability and
Equity Items

SO 2 Distinguish among operating, investing, and financing activities.

Classification
Classification of
of Cash
Cash Flows
Flows

Types of Cash Inflows and Outflows

IFRS requires that the following amounts be disclosed:

 Cash paid for taxes.

 Cash received and paid from interest and dividends.

Illustration 13-2
Daimler’s statement of
cash flows note

SO 2 Distinguish among operating, investing, and financing activities.

Usefulness
Usefulness and
and Format
Format

Significant Non-Cash Activities

1. Direct issuance of ordinary shares to purchase assets.
2. Conversion of bonds into ordinary shares.
3. Direct issuance of debt to purchase assets.
4. Exchanges of plant assets.

Companies report these activities in either a separate note or

supplementary schedule to the financial statements.

SO 2 Distinguish among operating, investing, and financing activities.

Usefulness
Usefulness and
and Format
Format

Format of the Statement of Cash Flows

Order of Presentation:
Direct Method
1. Operating activities.
2. Investing activities.
Indirect Method
3. Financing activities.

The cash flows from operating activities section always

appears first, followed by the investing and financing sections.

SO 2 Distinguish among operating, investing, and financing activities.

Format
Format of
of the
the Statement
Statement of
of Cash
Cash Flows
Flows
Illustration 13-3

SO 2 Distinguish among operating, investing, and financing activities.

Format
Format of
of the
the Statement
Statement of
of Cash
Cash Flows
Flows
During its first week, Hu Na Company had these
transactions.
Classification
1. Issued 100,000 HK$50 par value ordinary shares
Financing
for HK$8,000,000 cash.
2. Borrowed HK$2,000,000 from Castle Bank,
signing a 5-year note bearing 8% interest. Financing

3. Purchased two semi-trailer trucks for

Investing
HK$1,700,000 cash.
4. Paid employees HK$120,000 for salaries and
Operating
wages.
5. Collected HK$200,000 cash for services provided. Operating

SO 2 Distinguish among operating, investing, and financing activities.

Usefulness
Usefulness and
and Format
Format

Preparing the Statement of Cash Flows

Three Sources of Information:

1. Comparative statement of financial position

2. Current income statement
3. Additional information

SO 2 Distinguish among operating, investing, and financing activities.