STATEMENT OF CASH

FLOWS REPORTING 
GROUP 4
Managerial Accounting 
Learning objectives:
• Contrast cash inflows and outflows as relating to
operating, investing or financing activities.
• Produce a cash flows statement using the alternative
method to determine the net cash provided by
operating activities.
• Calculate free cash flow
• Use the direct method to determine the cash provided
from operations
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CASH DEFINED  
is defined as both currency and cash equivalents. Cash equivalents are
highly liquid investments, such as treasury bills, money market funds,
and commercial paper. Many firms, as part of their cash management
programs, invest their excess cash in these short-term securities. Because
of their high liquidity, these short-term investments are treated as cash
for the statement of cash flows. 3
PRESENTATION TITLE

 - is a financial statement that

provides aggregate data regarding
all cash inflows that a company
receives from its ongoing
Statement operations and external investment
of cash  sources. It also includes all cash
flows outflows that pay for business
activities and investments during a
given period.
 it measures the cash inflows or
 -- 
cash outflows during the given
Importance of period of time. This knowledge
statement of informs the company's short-
cash flow  and long-term planning. It also
helps in analyzing the optimum
level of cash and working capital
needed in the company.
 Statement of cash flows 
The statement of cash flows provides information regarding the sources and uses of a
firm’s cash. Activities that increase cash are sources of cash and are referred to as
cash inflows. Activities that decrease cash are uses of cash and referred to as cash
outflows.

The statement provides additional information by classifying cash flows into three
categories: cash flows from operating activities, cash flows from investing
activities, and cash flows from financing activities. 6
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 Sources of cash and uses of cash

- Operating activities are the ongoing, day-to-day, revenue-generating activities

of an organization. Typically, operating cash flows involve increases or decreases
in either current assets or current liabilities. Cash inflows from operating
activities come from the collection of sales revenues. Cash outflows are caused
by payment for operating costs. The difference between the two produces the net
cash inflow (outflow) from operations.
- Cash flow from operating activities (CFO) indicates the amount of money a
company brings in from its ongoing, regular business activities, such as
manufacturing and selling goods or providing a service to customers. It is the
first section depicted on a company's cash flow statement.
 Sources of cash and uses of cash

- Investing activities are those activities that involve the acquisition

or sale of long-term assets. Long-term assets may be productive
assets (e.g., acquiring new equipment) or long- term activities (e.g.,
acquiring stock in another company).
- Cash flow from investing activities is a section of the cash flow
statement that shows the cash generated or spent relating to
investment activities. Investing activities include purchases of
physical assets, investments in securities, or the sale of securities or
assets.
 Sources of cash and uses of cash

- Financing activities are those activities that raise (provide) cash

from (to) creditors and owners. Although interest payments could
be seen as financing outflows, the statement includes these
payments in the operating section.
- Cash flow from financing activities (CFF) measures the movement
of cash between a firm and its owners, investors, and creditors. This
report shows the net flow of funds used to run the company
including debt, equity, and dividends.
METHODS FOR CALCULATING OPERATING CASH FLOWS
The two approaches for calculating operating cash flows are the indirect method and
the direct method. The two methods differ only on how the cash flows from
operating activities are calculated.

• The indirect method computes operating cash flows by adjusting net income for
noncash items, nonoperating gains and losses, and accruals.

• The direct method computes operating cash flows by adjusting each line on the
income statement to reflect cash flows.

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 Preparation of the Statement: Indirect Method

Step 1: Compute the change in cash Step 2: Compute the cash flows
for the period. This figure is the from operating activities. Use the
difference between the ending and period’s beginning and ending
Five basic steps are followed in
beginning cash balances shown on balance sheets and information
preparing a statement of cash
the balance sheets. It must equal about other events and
flows:
the net cash inflow or outflow transactions to adjust the period’s
shown on the statement of cash income statement to an operating
flows. cash flow basis.

Step 3: Identify the cash flows from

investing activities. Use the period’s Step 4: Identify the cash flows from
beginning and ending balance financing activities. Use the period’s
sheets and information about other beginning and ending balance
events and transactions to identify sheets to identify the cash flows
the cash flows associated with the associated with long-term debt and
sale and purchase of long-term capital stock.
assets.

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 Step 1: Compute the Change in Cash
The following information on cash and cash equivalents for Lemmons Company:

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 Step 2: Compute for operating cash flows

Income statements are prepared on an accrual basis. Thus, revenues and expenses that involve no cash inflows and outflows
might be recognized. Also, cash inflows and outflows that are not recognized on the income statement might occur. The accrual
income statement can be converted to an operating cash flow basis by making four adjustments to net income:

a. Add to net income any increases in current liabilities and decreases in noncash current assets. 

b. Deduct from net income any decreases in current liabilities and increases in noncash

current assets. 

c. Add to or deduct from net income the remaining net income items that do not affect cash flows (e.g., add back noncash
expenses). 

d. Eliminate any income items that belong in either the investing or financing section.
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Step 2: Compute for operating cash flows

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 Step 3: Compute Investing Cash Flows

Investing activities include the purchase and sale of long-term assets (plant and
equipment, land, and long-term securities). The example below shows how to
compute investing cash flows for Lemmons. The company had three investing
transactions in 20X2, which are summarized in the investing section.

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 Step 4: Compute Financing Cash Flows

Issuance of long-term debt or capital stock can produce cash

inflows. Retirement of debt or stock and payment of
dividends produce cash outflows. Dividends represent a
return on the funds provided by stockholders

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 Step 5: Prepare the Statement of Cash Flows

The outcomes of Steps 2 through 4 correspond to the individual

sections needed for the statement of cash flows. The statement of
cash flows summarizes the flows for operating, investing, and
financing activities.

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 Thank you!
Jose Jherico Azarcon  Merian Guiling 
Jherico Evangelista Jaimelyn Sagario
Rowell De Guzman  Scarlet Bacani 
Gerald Calimlim Micaella Estorel  
Mario Menor  Leslie Ann De Vera
Giselle Montoya  Crisha Tamondong
Patricia Mae Peralta  Geline Franchesca Lagsac
Dhaniela Paola Austria