•Current asset and current liability transactions normally result from the operating activities of a company, such as buying and selling merchandise.
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cash provided (used) by operating activities • Cash investing and financing transactions for the
period
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Classification of cash flows
LO2
• Operating activities
Investing activities
The acquisition/disposal of long-term assets and other investments during a financial period.
. Examples include:
Cash inflows from…
• Prepare a statement of cash flows using the direct method
• Statement of cash flows- the indirect method
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STATEMENT OF CASH FLOWS: USEFULNESS AND FORMAT
• Financing activities
• Cash effects resulting from long-term borrowing and sharehrating activities
•Are transactions involving the acquisition or production of goods and services and the sale and distribution of these goods and services to customers.
Lend money to other parties
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Financing activities
Transactions between a company and its owners or between a company and its longterm creditors. Examples include:
Cash inflows from…
Cash outflows to…
Issuing shares and other
equity instruments
Buy back shares
Issuing bonds and other Repay bonds and other
borrowings
borrowings
Pay dividends (cash dividend)
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Significant non-cash activities
• Significant financing and investing activities that do not affect cash are not reported in the body of the statement of cash flows, but are disclosed elsewhere in the financial statement
LO1
• A statement of cash flows provides information about an entity’s cash receipts and cash payments during a period
• It answers the questions:
• Where did the cash come from during the period?
• Helps investors, creditors and other interested parties to evaluate the following about the entity:
• Ability to generate future cash flows • Ability to pay dividends and meet obligations • Reasons for difference between profit and net
• What was the cash used for during the period?
• What was the change in the cash balance during the period?
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Usefulness of the statement of cash flows
• Cash effects of transactions that create income and expenses
• Investing activities
• Cash effects resulting from acquisition and disposal of long-term assets
Cash outflows to…
Sale of non-current assets (PP&E, intangibles, share investments)
Repayments of loans advanced to other parties
Acquire non-current assets (PP&E, intangibles, share investments)
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CHAPTER 18 THE STATEMENT OF CASH FLOWS
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• Indicate the usefulness of the statement of cash flows
• Distinguish among operating, investing and financing activities