Statement of Cash Flows

Statement of Cash
Flow
Fundamentals of Accountancy,
Business and Management 2
Learning
Objectives
Define the statement of cash flows (SCF);
Discuss the components and structure of SCF; and
Prepare an SCF for a sole or single proprietorship
Operating Activities
Statement of Cash
Flows
Is a summary of the cash inflows
and outflows that brings the cash to
its ending balance. Financing Activities
The SCF is a formal statement that
classifies cash receipts (inflows)
and cash payments (outflows) into
operating, investing, and
financing activities of an entity
during a period.
Cash is king and every business
Investing Activities
aims to have as much cash, so it can
support its operation.
Increase in Cash
• Cash Receipts from
Operating Cash sales of goods or services
Activities Collection of receivables
Interest on loan receivables
Operating activities are the company’s
core operations or day-to-day activities
intended to generate income for the Decrease in Cash
business, thus they affect the net income.
• Cash Payments for
Covered under this category are ordinary
and necessary sales-related expenses Purchase of inventory
(merchandising) or the rendering of
service (service) to earn revenue.
Operating expenses
Income taxes
Liabilities from suppliers
Interest on loan payable
Financing
Activities
Financing activities pertains to transactions Increase in Cash Decrease in Cash
between the business and its owner(s) and
creditor(s). Thus, these activities affect Cash Receipts from Cash Payments for
nonoperating current liabilities, noncurrent • Owner’s investment • Owner’s drawings
liabilities, and owner’s equity
• Loan from financing • Payment of dividends
To determine the financing activities, refer to institution • Payment of loans to
sources of funds for the business – either • Issuance of company’s financial institutions
from loans (creditors) or investments placed stocks
in the business by the proprietor.
Increase in Cash
Investing • Cash Receipts from

 Sale of plant (productive) assets
Activities  Sale of investments such as stocks
and bonds
 Sale of business segment
Investing activities are transactions or
activities that will affect the inflows and  Collection of loans granted to others
outflows of cash due to the purchase and
disposal of noncurrent assets such as long-
term investments as well as property, plant, Decrease in Cash
and equipment.
The primary purpose of investing activities is

• Cash Payments for
to acquire an asset in order to assist and  Purchase of plant (productive)
facilitate business operations. assets
For investing activities, the purpose is to earn  Purchase of stocks and bonds
additional income for the business as in the  Providing loans to others
placement of excess funds in securities such
as stocks or commercial papers. An example
is the purchase of fixed assets, such as
buildings, equipment, and furniture.
Preparing the SCF
1 2 3
Cash transactions that will Cash transactions that will Cash transactions that will
result in generating affect the nonoperating affect noncurrent
income and incurring of current assets, as well as liabilities, nonoperating
expenses will be shown the acquisition or sale of current liabilities, and
under the caption noncurrent assets, will be owner’s equity, will be
“Operating Activities” shown under the caption shown under the caption
“Investing Activities” “Financing Activities”
Statement of Cash Flows – Direct Method
• Using this method, the entity’s
net cash provided by operating,
investing, and financing activities
is obtained by adding the
individual cash inflows and then
subtracting the individual cash
outflows.
Statement of Cash Flows – Indirect Method
• This method derives the et cash provided by
(or used in) operating activities by adjusting
profit for income and expense items not
resulting from cash transactions.
• The adjustment begins with profit, followed by

the addition of expenses and charges, that do
not entail cash payments. Then increase in
current assets and a decrease in current
liabilities are involved in the determination of
profit but which did not actually increase or
decrease cash are subtracted from profit.
Finally, decreases in current assets and
increases in current liabilities are added to
profit to obtain net cash.

Statement of Cash Flows

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Statement of Cash

Investing • Cash Receipts from

The primary purpose of investing activities is

• The adjustment begins with profit, followed by

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