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STATEMENT OF CASH FLOWS: USEFULNESS AND FORMAT
LO1
• A statement of cash flows provides
information about an entity’s cash receipts and cash payments during a period
• Ability to pay dividends and meet obligations • Reasons for difference between profit and net
cash provided (used) by operating activities • Cash investing and financing transactions for the period
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• Indicate the usefulness of the statement of cash
flows • Distinguish among operating, investing and financing activities • Prepare a statement of cash flows using the direct method • Statement of cash flows- the indirect method
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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 • Examples include …
Sale of non-current assets (PP&E, intangibles, share investments) Repayments of loans advanced to other parties
Cash outflows to…
Acquire non-current assets (PP&E, intangibles, share investments) Lend money to othe of cash flows
LO2
• Operating activities • Cash effects of transactions that create income and expenses • Investing activities • Cash effects resulting from acquisition and disposal of long-term assets • Financing activities • Cash effects resulting from long-term borrowing and shareholders’ equity
• It answers the questions: • Where did the cash come from during the period? • What was the cash used for during the period? • What was the change in the cash balance during the period?
Investing activities
The acquisition/disposal of long-term assets and other investments during a financial period. . Examples include:
Cash inflows from…
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Usefulness of the statement of cash flows
• Helps investors, creditors and other
interested parties to evaluate the following about the entity:
• Ability to generate future cash flows
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Operating activities
• Are transactions involving the acquisition or production of goods and services and the sale and distribution of these goods and services to customers. • Current asset and current liability transactions normally result from the operating activities of a company, such as buying and selling merchandise.
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 Buy back shares equity instruments Issuing bonds and other Repay bonds and other borrowings borrowings Pay dividends (cash dividend)