CASH FLOW

STATEMENT
By Prof. Anita B. Catolico
STATEMENT OF CASH FLOWS
⦿The statement of cash flows provides
information about the sources and utilization 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
IMPORTANCE OF STATEMENT OF
CASH FLOWS
⦿Helps owners see if their revenues are
actually translated to cash.
⦿Useful in assessing the ability of the entity
to generate cash and cash equivalents.
⦿To know if they have enough cash to pay
maturing liabilities.
⦿CASH – comprises cash on hand and demand
deposits.
⦿CASH EQUIVALENTS – short-term highly liquid
investments that are readily convertible to
cash. (3 months or less from date of
acquisition)

⦿CASH FLOWS – are inflows and outflows of

cash and cash equivalents.
OPERATING ACTIVITIES
⦿Cash flows derived primarily from the main
or principal revenue producing activities of
the entity.
⦿a. from sale of goods/services
⦿b. from royalties, rent, fees & others
⦿c. payments to suppliers
⦿d. payments of selling, administrative &
other expenses
⦿e. insurance premiums and claims
⦿f. income taxes
⦿g. securities held for trading
INVESTING ACTIVITIES
⦿Cash flows derived from the acquisition and
disposal of long-term assets and other non-
cash assets.
⦿a. acquisition/sale of PPE, intangibles &
other long-term assets
⦿b. acquisition/sale of equity or debt
instruments of other entities
⦿c. cash advances and loans to other parties
⦿d. receipts from repayment of loans/advances
FINANCING ACTIVITIES
⦿Cash flows derived from the equity capital
and borrowings of the entity. (equity and
debt financing)
⦿a. receipts from issuing shares or from
owner’s investments
⦿b. payments to owners to acquire or redeem
shares or owner’s withdrawals.
⦿c. receipts/proceeds from loans, notes,
bonds, mortgages & other short-term
borrowings
⦿d. payments for amounts borrowed
METHODS:
1. DIRECT METHOD – shows in detail the major
classes of gross cash receipts and cash
payments.
a. collections from customers
b. payments to merchandise creditors
c. payments for expenses
d. collections of other income
COMPUTATIONS OF COLLECTIONS
AND PAYMENTS
⦿COLLECTIONS = BEGINNING ACCOUNTS
RECEIVABLES + NET CREDIT SALES – ENDING
ACCOUNTS RECEIVABLES

⦿PAYMENTS = BEGINNING ACCOUNTS PAYABLE

+ CREDIT PURCHASES – ENDING ACCOUNTS
PAYABLE
2. INDIRECT METHOD – the net income or loss is
adjusted for the effects of transactions of a
non-cash nature. The difference from the
Direct Method is on the Operating Activities
only. Financing and Investing activities are the
same.
Begins with the accrual basis net income
and applies a series of adjustments to convert
the income to a cash basis.
LET’S TRY
⦿See excel!!
READY??