Statement of Cash Flows
• Only statement based on cash basis.
o Shows movements in cash/money.
Objective:
• Assess the ability of the entity to generate cash and cash equivalents.
o Timing and certainty of generation.
• Identify the needs of the entity to utilize those cash flows.
Benefits:
• Provides info required to evaluate:
o Changes in net assets of an entity.
o Financial structure = liquidity/solvency.
o Ability to use the cashflows to adapt to changing circumstances and opportunities.
o The ability of the entity to generate cash and cash equivalents.
o The comparability of CF to different entities.
• Eliminates the effects of using different accounting treatments for the same
transactions and events.
o Is the company expanding?
Definitions:
Cash Cash on hand and demand deposits.
Cash equivalents • Short term
• Highly liquid investments that are readily convertible
into known amounts of cash.
• Which are subject to an insignificant risk of changes in
value.
Cash flows Inflows and outflows of cash and cash equivalents.
Operating activities Are the principle revenue producing activities of the entity and other
activities that are not investing and financing activities.
Investing activities The acquisition and disposal of long term assets and other investments
not included in cash equivalents.
Financing activities Activities that result in changes in the size and composition of the
contributed equity and borrowings of the entity.
, Cash flow from OPERATING activities
+/- Cash applied in INVESTING activities
+/- Cash in(out)flow from FINANCING activities
= net increase / (decrease) in CASH AND CASH EQUIVALENTS
Cash flow from OPERATING ACTIVITIES:
• Cash flows derived from principle revenue-producing activities -> Transactions included in
P&L.
o Cash receipts sale of goods/services.
o Cash payments to suppliers for goods/services.
o Cash payments to employees.
o Cash payments and refunds of income taxes.
o Cash payments or receipts of interest/dividends.
Cash flow from INVESTING ACTIVITIES:
• Acquisition and sale of non-current assets and other investments not included in Cash and
Cash equivalents.
o Cash payments to acquire non-current assets.
• To maintain operations.
• To expand operations.
o Cash receipts (proceeds) from sale on non-current assets.
• Outdated
Cash flow from FINANCING ACTIVITIES:
• Activities which result in changes in the size and composition of equity capital and loans:
o Cash proceeds from issue of shares.
o Cash payments to owners to redeem shares.
o Cash proceeds from issuing of debt.
o Cash repayments of amounts borrowed.
Cash flow from operating activities - Direct Method:
Cash flows from operating activities
Cash receipts from customers X
Cash paid to suppliers and employees (X)
Cash generated from operations X
Interest paid (X)
• Only statement based on cash basis.
o Shows movements in cash/money.
Objective:
• Assess the ability of the entity to generate cash and cash equivalents.
o Timing and certainty of generation.
• Identify the needs of the entity to utilize those cash flows.
Benefits:
• Provides info required to evaluate:
o Changes in net assets of an entity.
o Financial structure = liquidity/solvency.
o Ability to use the cashflows to adapt to changing circumstances and opportunities.
o The ability of the entity to generate cash and cash equivalents.
o The comparability of CF to different entities.
• Eliminates the effects of using different accounting treatments for the same
transactions and events.
o Is the company expanding?
Definitions:
Cash Cash on hand and demand deposits.
Cash equivalents • Short term
• Highly liquid investments that are readily convertible
into known amounts of cash.
• Which are subject to an insignificant risk of changes in
value.
Cash flows Inflows and outflows of cash and cash equivalents.
Operating activities Are the principle revenue producing activities of the entity and other
activities that are not investing and financing activities.
Investing activities The acquisition and disposal of long term assets and other investments
not included in cash equivalents.
Financing activities Activities that result in changes in the size and composition of the
contributed equity and borrowings of the entity.
, Cash flow from OPERATING activities
+/- Cash applied in INVESTING activities
+/- Cash in(out)flow from FINANCING activities
= net increase / (decrease) in CASH AND CASH EQUIVALENTS
Cash flow from OPERATING ACTIVITIES:
• Cash flows derived from principle revenue-producing activities -> Transactions included in
P&L.
o Cash receipts sale of goods/services.
o Cash payments to suppliers for goods/services.
o Cash payments to employees.
o Cash payments and refunds of income taxes.
o Cash payments or receipts of interest/dividends.
Cash flow from INVESTING ACTIVITIES:
• Acquisition and sale of non-current assets and other investments not included in Cash and
Cash equivalents.
o Cash payments to acquire non-current assets.
• To maintain operations.
• To expand operations.
o Cash receipts (proceeds) from sale on non-current assets.
• Outdated
Cash flow from FINANCING ACTIVITIES:
• Activities which result in changes in the size and composition of equity capital and loans:
o Cash proceeds from issue of shares.
o Cash payments to owners to redeem shares.
o Cash proceeds from issuing of debt.
o Cash repayments of amounts borrowed.
Cash flow from operating activities - Direct Method:
Cash flows from operating activities
Cash receipts from customers X
Cash paid to suppliers and employees (X)
Cash generated from operations X
Interest paid (X)
