Statement of Cash Flows Overview

A financial statement that shows how a company's cash balance changed during a specific period. It classifies cash flows into operating, investing, and financing activities.

Cash flows generated from the normal day-to-day operations of a business, affecting income-related accounts.

Cash flows related to the purchase and sale of long-term assets, such as property, plant, and equipment.

Cash flows related to financing the business, including transactions involving debt and equity.

Examples include cash received from selling goods or services, paying suppliers for goods, paying employee salaries, and paying taxes.

Cash flows from investing activities involve transactions related to acquiring and selling long-term assets, like property, plant, and equipment, investment property, and intangible assets.

Cash flows from financing activities relate to how a company raises money and how it repays its debts. It includes issuing shares, borrowing loans, and repaying debts.

The direct method of reporting cash flows from operating activities directly shows the actual cash inflows and outflows from the main business operations.

The indirect method of reporting cash flows from operating activities starts with net income (profit) and adjusts it for non-cash items and changes in working capital.

PAS 8 is a standard that provides guidance for selecting, applying, and changing accounting policies. It also addresses how to handle changes in accounting estimates and correct errors from previous periods.

Accounting policies are the set of rules and practices that a company uses to prepare and present its financial statements. They are based on relevant accounting standards, like PFRSs.

PFRSs are the standards and interpretations adopted by the Financial Reporting Standards Council (FRSC) in the Philippines to ensure consistent and transparent financial reporting.

Changes in accounting policies can occur when a company adopts a new standard or revises their accounting methods. These changes require specific disclosures in financial statements.

A change in an accounting policy is made when a new PFRS (Philippine Financial Reporting Standard) requires it, or when it provides more relevant and reliable information about the company's financial standing, performance, and cash flow.

Examples of changes in accounting policies include switching inventory valuation methods from FIFO to average cost, changing revenue recognition for construction projects, and adopting a new PFRS.

A change in accounting estimate is an adjustment made to previously recorded information due to new insights or assessments. It doesn't change the accounting principle, but rather the application of that principle based on new information.

Examples of changes in accounting estimates include altering depreciation or amortization methods, adjusting the estimated lifespan of assets, and making revisions to impairment allowances.

Errors in financial reporting arise from mistakes in calculations, applying accounting policies incorrectly, overlooking or misinterpreting facts, or even intentional fraud.

Adjusting events after the reporting period are those that provide evidence of conditions that existed at the end of the reporting period. They require adjustments to the financial statements.

Non-adjusting events after the reporting period are events that arose after the reporting period ended. They don't require adjustments to the financial statements, but they may be disclosed in the notes.

The date of authorization for issue is the date when management approves the financial statements for release, regardless of whether it's for internal review or final publication.

Examples of adjusting events after the reporting period include a court case settlement confirming a present obligation at the end of the reporting period, or new information revealing an asset was impaired at the end of the reporting period.

PAS 10 (Philippine Accounting Standard 10) deals with events that take place after the reporting period, whether they require adjustments to the financial statements or not.

Subsequent events that provide evidence of conditions that existed at the end of the reporting period, requiring adjustments to the financial statements because they affect the carrying amount of assets and liabilities.

Subsequent events that provide evidence of conditions that did not exist at the end of the reporting period, requiring disclosure in the financial statements.

A customer's bankruptcy after the reporting period that indicates their ability to pay back existing debt might be impaired. This requires adjusting the trade receivable on the financial statements.

The sale of inventories after the reporting period reveals their value at the end of the reporting period.

Determination of the cost of an asset purchased, or the proceeds from an asset sold, before the end of the reporting period, but the information wasn't available at the time.

When fraud or error is discovered that shows the financial statements are wrong, adjustments are needed.

Fluctuations in fair values, foreign exchange rates, interest rates, or market prices after the reporting period do not require adjustments to the financial statements, but they should be disclosed.

Casualty losses (e.g., fire, storm, or earthquake) that happen after the reporting period but before the financial statements are published require disclosure.