CHAPTER 17

STATEMENT of CASH
FLOW
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.
The statement of cash flows presents cash flows
according to the following classifications:
1. Operating activities
2. Investing activities
3. Financing activities

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Activities
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.
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Examples of cash flows from Operating
Activities

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

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Examples of cash flows from Investing
Activities

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 financial institution)

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Examples of cash flows from Financing
Activities

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.

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Core principle

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Interests and Dividends

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Reporting 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.

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Direct method
Indirect method