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COLLEGE OF BUSINESS AND ACCOUNTANCY

Topic: PAS 7 – Cash Flow Analysis

Learning Outcomes:

 Describe the statement of cash flows.

Biblical Values Integration

Proverbs 13:11
Dishonest money dwindles away, but whoever gathers money little by little makes it grow.

Introduction:

PAS 7 prescribes the requirements in the presentation of statement of cash flows.

The statement of cash flows provides information about the sources and utilization (i.e ., historical changes)
of cash and cash equivalents during the period.

Body:

The statement of cash flows provides information about the sources and utilization (i.e., historical changes)
of cash and cash equivalents during the period. The statement of cash flows presents cash flows according to
the following classifications:

1. Operating activities include transactions that enter the determination of profit or loss. These
transactions normally affect income statement accounts.
2. Investing activities include transactions that affect long-term assets and other non-operating assets.
3. Financing activities include transactions that affect equity and non-operating liabilities.

OPERATING ACTIVITIES

Examples of cash flows from Operating Activities

a. cash receipts from the sale of goods, rendering of services, or other forms of income
b. cash payments for purchases of goods and services
c. cash payments for operating expenses, such as employee benefits, insurance, and the like, and
payments or refunds of income taxes
d. cash receipts and payments from contracts held for dealing or trading purposes
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INVESTING ACTIVITIES

Examples of cash flows from Investing Activities

a. cash receipts and cash payments in the acquisition and disposal of property, plant and equipment,
investment property, intangible assets and other noncurrent assets
b. cash receipts and cash payments in the acquisition and sale of equity or debt instruments of other
entities (other than those that are classified as cash equivalents or held for trading)
c. cash receipts and cash payments on derivative assets and liabilities (other than those that are held
for trading or classified as financing activities)
d. loans to other parties and collections thereof (other than loans made by a financial institution)

FINANCING ACTIVITIES

Examples of cash flows from Financing Activities

a. cash receipts from issuing shares or other equity instruments and cash payments to redeem them
b. cash receipts from issuing notes, loans, bonds and mortgage payable and other short-term or long-
term borrowings, and their repayments
c. cash payments by a lessee for the reduction of the outstanding liability relating to a lease.

Core principle

Interests and Dividends

FINANCIAL STATEMENT PRESENTATION

Reporting cash flows from operating activities

Direct method - shows each major class of gross cash receipts and gross cash payments.

Indirect method - adjusts accrual basis profit or loss for the effects of changes in operating assets and
liabilities and effects of non-cash items.

DISCLOSURES

1. Components of cash and cash equivalents and a reconciliation of amounts in the statement of cash flows
with the equivalent items in the statement of financial position.

2. Significant cash and cash equivalents held by the entity that are not available for use by the group,
together with a management commentary.

SUMMARY

 The statement of cash flows shows the historical changes (i.e. ., sources and utilization) in cash and
cash equivalents during the period. It is an integral part of a complete set of financial statements and is
used in conjunction with the other financial statements in assessing the ability of an entity to generate
cash and cash equivalents, the timing and certainty of their generation, and the needs of the entity to
utilize those cash lows.
 Cash flows are classified into (a) operating activities, (b) investing activities, and (c) financing
activities.
 Operating activities include transactions that enter into the determination of profit or loss, i.e ., income
and expenses.
 Investing activities include transactions that affect noncurrent assets and other non-operating assets.
 Financing activities include transactions that affect equity and non-operating liabilities.
 Only transactions that have affected cash and cash equivalents are included in the statement of cash
flows. Noncash transactions are excluded and disclosed only.
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 Entities other than financial institutions have options in presenting cash flows relating to interests and
dividends. Cash flows from operating activities may be reported using either (a) direct method or (b)
indirect method.
 The direct method shows each major class of gross cash receipts and gross cash payments. Under the
indirect method, profit or loss is adjusted for the effects of non-cash items and changes in operating
assets and liabilities.
 Cash flows relating to investing and financing activities are presented separately at gross amounts
unless they qualify for net presentation.

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References:
Milan, Z.V. (2020). Conceptual Framework and Accounting Standards. 2020 Ed. Bandolin Enterprise.
Valix, C.A (2020). Conceptual Framework. 2020 Ed. GIC Enterprises & Co., Inc.