Accounting Statement of Cash Flow

To report a firms cash inflows and outflows, during a period of time, segregated into here
categories: operating, investing and financing activities. This statement id required under the
Statement of Financial Accounting Standards (SFAS) No. 95. To identify :
1. A companys ability to generate future net cash inflows and operations to pay debts,
interest and dividends.
2. A companys need for external financing
3. The reasons for differences between net income and net cash flow from operating activities.
4. The effects of cash and noncash investing and financing transactions.
It explains changes in cash (and cash equivalents, such as, Treasury bills) by listing the activities
that increased cash and those that decreased cash.
May be presented using either a direct method (easier to understand) or and indirect method
(easier to prepare)
- Direct Method operating cash flows are reported (directly) by major classes of operating cash
receipts (from costumers) and payments (to suppliers and employees).
- Indirect Method - A separate (indirect0 reconciliation of net income to net cash flow from
operating activities must be provided.
Types of Financial Instruments
Currency represents the obligations issued by the Philippine Treasury as coins and paper
currency
Debit / Credit represent promises to pay to the creditor specified amounts plus interest at a
future date or dates
Generally means common stock representing the equity or ownership claims on an
organization.

Financial System

Financial transaction financial assets and financial liabilities

Financial Market creation and transfer of financial assets and financial liabilities
- Comprised of all trade that result in the creation of financial assets and
financial liabilities

Segments of Financial Market

Money market when the financial claims and obligations and sold have maturities of less than
1 year.
Capital market the maturities is more than a year like plants, machineries and equipment-
long term financial instruments.

Financial market institution

Primary Markets stocks and bonds are initially sold.

- Made by investment banking firms that purchase the securities from issuing
firm and sell them through an underwriting syndicate or group.
Secondary market they are subsequently traded.
- Take place in organized securities or less formal markets.
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