Fundamentals of Accounting, Business & Management 2 (FUNABM2) PDF

FUNDAMENTALS OF ACCOUNTING, BUSINESS & MANAGEMENT 2 (FUNABM2) The Statement of Cash Flow ELSIE N. VELASCO Faculty Member, Accountancy Department De La Salle University, Manila, Philippines  LEARNING OBJECTIVES At the end of the session, you should be able to: 1. Describe Stat...

FUNDAMENTALS OF ACCOUNTING, BUSINESS & MANAGEMENT 2 (FUNABM2) The Statement of Cash Flow ELSIE N. VELASCO Faculty Member, Accountancy Department De La Salle University, Manila, Philippines  LEARNING OBJECTIVES At the end of the session, you should be able to: 1. Describe Statement of Cash Flow 2. Give the purpose of Statement of Cash Flow 3. Give the 3 classifications of cash flow 4. Describe each classification 5. Give examples for each classification.  STATEMENT OF CASH FLOW A statement of cash flow is a basic component of the financial statements summarizing the operating, investing and financing activities of an enterprise. In simple language, the statement of cash flow provides information about the cash receipts and cash payments of an enterprise during a period. Purpose of Statement of Cash Flow  The primary purpose of a statement of cash flow is to provide relevant information about cash receipts and cash payments of an enterprise during a period.  Provides information that enables users to evaluate the changes in net assets of an enterprise, its financial structure, liquidity and solvency.  Cash flow information is useful in assessing the ability of the enterprise to generate cash and equivalents.  Also enhances the comparability of operating performance by different enterprises.  CLASSIFICATION OF CASH FLOWS Cash flows are inflows of cash and cash equivalents. The statement of cash flow should report cash flows during the period classified as follows: Operating activities Investing activities Financing activities  Classification OF Cash Flows Operating activities are the cash derived primarily from the principal revenue producing activities of the enterprise. In other words, operating activities generally result from transactions and other events that enter into the determination of net income or loss.  Examples of Cash flows from Operating Activities are:  Cash receipts from sale of goods and rendering of services  Cash receipts from royalties, rental, fees, commissions and other revenue  Cash payments to suppliers for goods and services  Cash payments for selling, administrative and other expenses  Cash receipts and payments for securities held for dealing or trading purposes Classification of cash flows Investing activities are the cash flows derived from the acquisition and disposal of long-term assets and other investments not included in cash equivalent. As a simple guide, investing activities include cash flows from transactions involving nonoperating assets.  Examples of Cash Flows from Investing Activities are:  Cash payments to acquire property, plant and equipment, intangibles and other long-term assets.  Cash receipts from sales of property, plant and equipment, intangibles and other long-term assets.  Cash payments to acquire equity or debt instruments of other enterprises.  Cash receipts from sales of equity or debt instruments.  Classification of Cash Flows  Financing activities are the cash flows derived from the equity capital and borrowings of the enterprise.  In other words, financing activities are the cash flows that result from transactions between the enterprise and its owners (equity financing) and between the enterprise and its creditors (debt financing).  As a simple guide, financing activities include the cash flows from transactions involving “nontrade liabilities” and “equity” of an enterprise.  Examples of Cash Flows from Financing Activities  Cash receipts from contributions by owners.  Cash withdrawals by owners.  Cash receipts from issuing notes, bonds, mortgages and other short or long term borrowings.  Cash payments for amounts borrowed. Note that cash payments to settle such obligations as trade accounts and notes payable, accrued expenses and similar items are operating activities, not financing activities.  ILLUSTRATION STATEMENT OF CASH FLOW -END OF PART 1 THANK YOU FOR LISTENING!