(Intermediate Accounting 3)

LECTURE AID

2020

ZEUS VERNON B. MILLAN

Chapter 6 Statement of Cash Flows
Related standard: PAS 7 Statement of Cash Flows

Learning Objectives
• Define the following: (1) Operating activities, (2) Investing
activities, and (3) Financing activities.
• State the classification of the following in a statement of cash
flows: (a) dividends received, (b) dividends paid, (c) interest
paid and (d) interest received.
• Prepare a statement of cash flows presenting cash flows from
operating activities using (a) direct method and (b) indirect
method.
INTERMEDIATE ACCTG 3 (By: Zeus Vernon B. Millan)
Statement of Cash Flows

• A statement of cash flows is a component of financial

statements that provides information about the historical changes in
cash and cash equivalents of an entity by classifying cash flows
during the period according to
1. Operating activities,
2. Investing activities, and
3. Financing activities.

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Core principle

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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
1. Cash receipts from the sale of goods and the rendering of services;
2. Cash receipts from royalties, fees, commissions and other revenue;
3. Cash payments to suppliers for goods and services;
4. Cash payments to and on behalf of employees;
5. Cash receipts and cash payments of an insurance entity for premiums
and claims, annuities and other policy benefits;
6. Cash payments or refunds of income taxes unless they can be
specifically identified with financing and investing activities; and
7. Cash receipts and payments from contracts held for dealing or
trading purposes (e.g., cash payments for purchases of and cash
receipts from sale of financial assets and financial liabilities that are
held for trading).
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ernon B. Millan)
Examples of cash flows from Investing
Activities
1. Cash payments for the acquisition and subsequent capitalizable costs for
property, plant and equipment, intangibles and other long-term assets.
2. Cash receipts from sales of property, plant and equipment, intangibles and
other long-term assets;
3. Cash payments to acquire equity or debt instruments of other entities and
interests in joint ventures (other than payments for instruments
considered as cash equivalents or held for dealing or trading purposes);
4. Cash receipts from sales of equity or debt instruments of other entities and
interests in joint ventures (other than receipts for those instruments
considered to be cash equivalents and those held for dealing or trading
purposes);
5. Cash advances and loans made to other parties and repayments thereof
(other than advances and loans made by a financial institution).
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ernon B. Millan)
Examples of cash flows from Financing
Activities
1. Cash proceeds from issuing shares or other equity
instruments;
2. Cash payments to owners to acquire or redeem the entity’s
shares;
3. Cash proceeds from issuing debentures, loans, notes, bonds,
mortgages and other short or long-term borrowings;
4. Cash repayments of amounts borrowed; and
5. Cash payments by a lessee for the reduction of the outstanding
liability relating to a finance lease.

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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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Indirect method

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 APPLICATION OF CONCEPTS

PROBLEM 2: FOR CLASSROOM DISCUSSION

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 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

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 END

INTERMEDIATE ACCTG 3 (By: Zeus Vernon B. Millan)