GRADE 12

2nd SEMESTER
Learner
CASH FLOW STATEMENT (CFS)
’s Hand
The Cash Flows Statement (CFS) Out
The statement of cash flows is a formal statement that provides information about the cash receipts
(inflows) and cash payments (outflows) of an entity from operating, investing, and financing activities during
the period. Unlike the SCI, this statement shows cash transaction only while the latter follows accrual
principle. This statement is prepared based on information from the income statement and balance sheet. It
also portrays how company has spent its cash. As per Phil. Accounting Standards (PAS) No. 7, enterprises
are encourage to report cash flows from operating activities using direct method but the indirect method is
acceptable.

The Three Major parts of CFS

1. Operating Activities are generally the cash effects of transactions and other events that enter into the
determination of profit or loss. It usually involves day – to – day transaction, providing service and
delivering goods. IAS (IASB, 2001) lists the following transactions as examples of operating activities.
EFFECTS
ACTIVITIES + (increases cash) inflow
- (decreases cash) outflow
Cash receipts from sale of goods and rendering of services +
Cash receipts from royalties, fees, commission, and other revenues +
Cash payments to suppliers of goods and services -
Cash payments to employees -
Cash payments to income taxes -
Interest paid -
Interest received +
Dividends received +

2. Investing Activities include making and collecting loans, activities like acquiring and disposing
investments in debt or equity securities and obtaining and selling of property and equipment.
EFFECTS
ACTIVITIES + (increases cash) inflow
- (decreases cash) outflow
Cash payments to acquire property, plant and equipment -
Cash payment to acquire intangible assets -
Cash receipts from sales of property, plant and equipment +
Cash receipts from sales of intangible assets +
Cash receipts from sale of long-term assets +

3. Financing Activities are the net amount of funding a company generates in a given period of time to
finance its business usually include obtaining resources from owners and creditors. Hence, cash activities
under this section are deal with debt and equity.
ACTIVITIES EFFECTS
+ (increases cash) inflow
- (decreases cash) outflow
Cash investment from owners +
Cash proceeds from bank loans +
Cash distribution from owners -
Repayment of bank loans -

Approaches of the Statement of Cash Flows

According to IAS 7 (IASB 2001), entities are given an option to present the statement of cash flow
whether to use the direct or indirect method.

1. Direct Method
The direct method presents each major classification of gross receipts and gross payments for
operating activities. This is in line with the items presented in the table below. IAS (IASB, 2001) encourages
the use of the direct method. Below is an example of a direct method.
Soriano Trading
 Statement of Cash Flows
For the Period Ended December 31, 2019
Cash Flow from Operating Activities:
Cash receipts from rendering of services 200,000.00
Cash payment to suppliers of goods and services ( 50,000.00 )
Net cash flow from Operating Activities 150,000.00
Cash Flow from Investing Activities:
Proceeds from sale of equipment 100,000.00
Net cash flow from Investing Activities 100,000.00
Cash Flow from Financing Activities:
Proceeds from cash investment from owners 250,000.00
Proceeds from bank loan 30,000.00
Payment to owners ( 15,000.00 )
Net cash flow from Financing Activities 265,000.00
Net Change in Cash 515,000.00
Cash, beginning of the period 300,000.00
Cash , end of the period 815,000.00
Sample of Statement of Cash Flows using Direct Method.

Net change in cash or net cash flow (increase/decrease) is the net amount of change in cash either it is
an increase or decrease for the current period brought by operating, investing and financing activities.
Beginning balance is the balance of the cash account at the beginning of the accounting period.
Ending balance is the balance of the cash account at the end of the accounting period computed using the
beginning balance + the net change in cash for the current period. Cash flow statement should only include
cash transactions and that the net income/loss of the company can contain non – cash transactions such
as depreciation. Changes in current assets and liabilities are included if they are related to revenues and
expenses which were included in the net income/loss even if they were non-cash transactions or they
affected cash but was not part of the net income/loss (accrual, prepaid, unearned).

2. Indirect method
The indirect method however, presents the operating activities starting with the pre-tax income. It
then reconciles the pre-tax for non-cash income and expenditures. After which, the movement in current
assets and liabilities are adjusted to the resulting figure. Below is an example of a statement of cash flows
presented using the indirect method:
Soriano Trading
Statement of Cash Flows
For the Period Ended December 31, 2019
Cash Flow from Operating Activities:
Income before income tax 125,000.00
Adjustment for:
Depreciation 10,000.00
Amortization 20,000.00
Operating income before working capital changes 155,000.00
Increase in accounts receivable ( 10,000.00)
Decrease in inventories 15,000.00
Increase in accounts payable 5,000.00
Decrease in notes payable (15,000.00)
Net cash flow from Operating Activities 150,000.00
Cash Flow from Investing Activities:
Proceeds from sale of equipment 100,000.00
Net cash flow from Investing Activities 100,000.00
Cash Flow from Financing Activities:
Proceeds from cash investment from owners 250,000.00
Proceeds from bank loan 30,000.00
Payment to owners ( 15,000.00 )
Net cash flow from Financing Activities 265,000.00
Net Change in Cash 515,000.00
Cash, beginning of the period 300,000.00
Cash , end of the period 815,000.00
Sample of Statement of Cash Flows using Indirect Method.
 For the purpose of this text, the direct method will be used; it is more preferred by IAS 7 (IASB
2001). Furthermore, beginners in preparing the statement of cash flow will appreciate the said format.

Preparing the Statement of Cash Flows

1. Determine the heading

The heading of the statement includes the company name, title of the statement, and the period
covered by the statement. Below is the heading of the statement of the cash flow for the illustrative case:

SORIANO TRADING
Statement of Cash Flows
For the Period Ended December 31, 2019

2. Analyse the Cash Transaction

Every cash transaction should be carefully analysed to determine its nature, the effect and the
classification or section where it belongs.

3. Prepare the Operating Activities Section

All cash transactions that will affect net income of profit and loss will be classified as operating
activities. See examples of transactions under operating activities in the previous discussion.

4. Prepare the Investing Activities Section

All cash transactions that will affect the noncurrent assets are classified under this section. See
examples of transactions under investing activities on the previous discussion.

5. Prepare the Financing Activities Section

All cash transactions affecting noncurrent liabilities and equity will be classified as financing. See
examples of transactions under this section in the previous discussion.

6. Determine the Net Change in Cash

This is the Cash at the beginning of the period and the Cash at the end of the period.

Illustrative Example of Statement of Cash Flows:

Soriano Trading
HEADING
Statement of Cash Flows
For the Period Ended December 31, 2019
Cash Flow from Operating Activities:
OPERATING
Cash receipts from rendering of services 200,000.00
ACTIVITIES SECTION
Cash payment to suppliers of goods and services ( 50,000.00 )
Net cash flow from Operating Activities 150,000.00
Cash Flow from Investing Activities: INVESTING
Proceeds from sale of equipment 100,000.00 ACTIVITIES SECTION
Net cash flow from Investing Activities 100,000.00
Cash Flow from Financing Activities:
Proceeds from cash investment from owners 250,000.00 FINANCING
Proceeds from bank loan 30,000.00 ACTIVITIES SECTION
Payment to owners ( 15,000.00 )
Net cash flow from Financing Activities 265,000.00
Net Change in Cash 515,000.00 Net Change in cash
Cash, beginning of the period 300,000.00 Cash beginning
Cash , end of the period 815,000.00 Cash ending
Activity 2: Classifying Cash Transactions
Instructions: Categorize each cash flow as (O) for operating, (I) for investing, (F) for
financing. Write your answer on the space provided below.

1. Cash received from sale of building. ____________

2. Cash paid for salaries. ____________
3. Cash received for interest on a note receivable. ____________
4. Cash paid to acquire a new truck. ____________
5. Cash loaned out to a customer in the form of long-term note ____________
6. Cash received for a service rendered. ____________
7. Cash paid for interest. ____________
8. Cash paid for insurance on equipment. ____________
9. Cash received from a debtor representing payments of principal. ____________
10. Cash paid out to acquire a building. ____________
11. Cash paid for taxes. ____________
12. Cash received from borrowings. ____________
13. Cash paid to acquire equity securities. ____________
14. Cash paid for utilities. ____________
15. Cash received from investments by owner. ____________