Chapter - 18

Statement of Cash Flows

Topic Videos 164-169 are mandatory part of this module

MGT 101
Berlin Sans FB

Financial Accounting
By
Mian Ahmad Farhan, FCA
 Contents
Sr. Lecture
Course Outline Topics
No video

1 Purpose of Preparing Statement of Cash Flows 164

2 Format of Statement of Cash Flows 165

3 Cash generated from Operations 166

4 Working Notes 167

Practice - Preparing Cash Flow from Receipt
5 168
and Payment Account
Practice - Preparing Cash Flow from Balance
6 169
Sheet of Two Years
7 Important Tips to Remember 169
Statement of Cash Flows

Purpose of
Preparing
Statement of Cash
Flows
Analytical Statement

Cash Receipts

Cash Inflows

Cash Payments

Cash Inflows
Cash Book Vs SOCF

Cash Book
is maintained
chronologically for all
receipts and payments
Receipt & Payment
is a report that is
prepared at the end of a
reporting period
Statement of Cash Flows
is an analysis of all
receipts and payments
into; Operating Activity,
Investing Activity,
Financing Activity
Important Tips To Remember - ITTR

1. Although the SOCF

is one of the five
components of
financial
statements, it is
also plays vital role
in analyzing cash
flows of an entity
Statement of Cash Flows

Format
Statement of Cash
Flows
 Format - SOFP
Company Name
Statement of Cash Flows
For the year ended, 30th June 20X9
Operating Activity: Rs. Rs.
Cash generated from operations (W-1) ***
Cash received from Interest/Dividends (W-2) ***
Cash paid for interest/financial charges (W-3) (**)
Cash paid for Income Tax (W-4) (**) ***
Investing Activity:
Cash paid for purchasing non-current assets (W-5) (**)
Cash from disposal of non-current assets (W-5) *** ***
Financing Activity:
Cash received from owners as capital ***
Cash paid to owners as distribution of profits (**)
Cash received as loan (short/long term) ***
Cash paid for repayment of loan (short/long term) (**)
Cash paid for redemption of debt certificates (**) ***
Net cash In-flow / Out-flow during the year ***
+ Opening Cash and Cash Equivalents (W-6) ***
Closing Cash and Cash Equivalents (W-6) ***
Important Tips To Remember - ITTR

1. Operating
2. Investing
3. Financing
4. Cash & Cash
Equivalent
Statement of Cash Flows

Working Notes

Cash Generated
from Operations
 Format - SOFP
Company Name
Statement of Cash Flows
For the year ended, 30th June 20X9
Operating Activity: Rs. Rs.
Cash generated from operations (W-1) ***
Cash received from Interest/Dividends (W-2) ***
Cash paid for interest/financial charges (W-3) (**)
Cash paid for Income Tax (W-4) (**) ***
Investing Activity:
Cash paid for purchasing non-current assets (W-5) (**)
Cash from disposal of non-current assets (W-5) *** ***
Financing Activity:
Cash received from owners as capital ***
Cash paid to owners as distribution of profits (**)
Cash received as loan (short/long term) ***
Cash paid for repayment of loan (short/long term) (**)
Cash paid for redemption of debt certificates (**) ***
Net cash In-flow / Out-flow during the year ***
+ Opening Cash and Cash Equivalents (W-6) ***
Closing Cash and Cash Equivalents (W-6) ***
Cash Generated from Operations
W-1 (Direct Method)

Cash generated from operations:

Cash collected from Customers (W-1a) ***
Cash paid to suppliers (W-1b) (**)
Cash paid to and on behalf of employees (**)
Cash paid for other operating Expenses (W-1c) (**)
***

W-1a
Cash Generated from Operations
W-1b

W-1(b-i)

Total Purchases Rs.

Cost of Goods Sold ***

+ Closing Stock ***
- Opening Stock ***
Total Purchases ***
Cash Generated from Operations
W-1(c) Rs. Rs.
All operating Expenses ***
Less:
Salaries & Wages ***
Depreciation ***
Amortization ***
Loss on Disposal of Asset ***
Bad Debts ***
Discount Allowed *** (**)
Cash paid for Operating Expenses ***
+Opening Due ***
-Closing Due (**)
-Opening Advance (**)
+Closing Advance ***
Cash paid for Operating Expenses ***
Cash Generated from Operations
W-1 (Indirect Method) Rs. Rs.
Profit after tax ***
+ Income Tax Expense ***
Profit before Tax ***
+ Financial Changes (Interest Expense) ***
Other incomes:
- Profit on disposal and Interest Income etc. (**)
Profit from Operations ***
+ Non-Cash Operating Expenses (Non-Current Assets)
Depreciation/Amortization ***
Impairment ***
Loss on disposal *** ***
+ Adjustment for non-cash Working capital items
Stock ***
Debtors ***
Prepaid Operating Expenses ***
Creditors ***
Accrued operating Expenses *** ***
Cash Generated from operations ***
Important Tips To Remember - ITTR

1. Direct method
focuses on receipt
and payment items
only
2. Indirect method
works back to
shunt out non-cash
items that were
considered while
calculating profit
for the year
Statement of Cash Flows

Working Notes

Statement of Cash
Flows
 Format - SOFP
Company Name
Statement of Cash Flows
For the year ended, 30th June 20X9
Operating Activity: Rs. Rs.
Cash generated from operations (W-1) ***
Cash received from Interest/Dividends (W-2) ***
Cash paid for interest/financial charges (W-3) (**)
Cash paid for Income Tax (W-4) (**) ***
Investing Activity:
Cash paid for purchasing non-current assets (W-5) (**)
Cash from disposal of non-current assets (W-5) *** ***
Financing Activity:
Cash received from owners as capital ***
Cash paid to owners as distribution of profits (**)
Cash received as loan (short/long term) ***
Cash paid for repayment of loan (short/long term) (**)
Cash paid for redemption of debt certificates (**) ***
Net cash In-flow / Out-flow during the year ***
+ Opening Cash and Cash Equivalents (W-6) ***
Closing Cash and Cash Equivalents (W-6) ***
Interest Income & Interest Expense

W-2 Rs.
Interest Income (from I/S) ***
+ Opening Interest Due (Assets in previous B/S) ***
- Closing Interest Due (Assets in current B/S) (**)
Cash Received for Interest ***

W-3 Rs.
Interest Expense (from I/S) ***
+ opening interest Due (Liabilities in Previous B/S)***
- Closing interest Due (Liabilities in Current B/S) (**)
Cash Paid for Interest ***
 Income Tax Expense

W-4 Rs.
Income Tax Expense (from I/S) ***
+ Opening Tax Provision (Liabilities in Previous B/S) ***
- Closing Tax Provision (Liabilities in Current B/S) (**)
Cash Paid for Income Tax ***
 Fixed Asset
W-5
 Cash and Cash Equivalent
W-6
Important Tips To Remember - ITTR

1. Do reverse
calculation to
ascertain cashed
based information
from the accrual
based information
2. Demand deposit
bank accounts and
very short term
investments and
deposits are Cash
Equivalents
Statement of Cash Flows

Practice

Statement of Cash
Flows
from
Receipt and
Payment Account
Practice 18.1
Answer – Practice 18.1
Answer – Practice 18.1
Important Tips To Remember - ITTR

1. Mark carefully O-I-F

Statement of Cash Flows

Practice

Statement of Cash
Flows
from
Balance Sheet
of
Current & Previous
Years
Practice 18.2
Practice 18.2
Answer – Practice 18.2
Answer – Practice 18.2
 Working – Practice 18.2
W-1

W-2

W-3
 Working – Practice 18.2

W-4 Net profit

Rs.
Closing capital 30,000
Drawings 8,000
Fresh capital (15,000)
Opening capital (18,000)
Net profit 5,000
Important Tips To Remember - ITTR
1. Take Care of non-
cash movement in
accounting heads
• Issue of bonus
shares
• Revaluation of
fixed assets
2. Interest and
Dividend received
can be Operating
as well as Investing
Activity
3. Interest and
Dividend paid can
be Operating as
well as Financing
Activity
Important Tips To Remember - ITTR
4. Operating activity
belongs to Income
Statement
5. Investing activity
belongs to Non-
Current Assets
6. Financial activity
belongs to Non-
Current Liabilities
and Owners’ Equity
Important Tips To Remember - ITTR

7. Change in all
Current Assets and
Current Liabilities
should not be taken
to Operating
Activity
• Cash & Cash
Equivalent
• Loan receivable
• Loan payable
• Creditor against
purchase of
non-current
assets
• Current portion
of lease liability