Statement ofCash flow

Evolution of the Statement of

Cash
GAAP
1971:

Fund Statement: Reported resource provided and use of

resource.
Concept of Fund:
Cash: Cash Reciept & Cash Disbursement
Working Capital: All material transaction that results in a
change in working capital (current asset current liabilities)
are reported
All-financial Resource: Conjunction with another concept of
fund (cash and working capital) an includes all items that
affect the financing and investing activities

Evolution of the Statement of Cash

(Cont.)
IAS
1976

Exposure draft E7 Statement of Source and

application of fund
1992
IAS 7 (1992) Statement of Cash Flow

Statement of Cash Flow is

Necessary to Evaluate:
1.

Liquidity

Firm abillity to convert asset to cash or to pay

current
liability.
2.

Solvency
Firms abillity to obtain for bussines operation
(pay
debt)

3.

Financial Flexibility
Firms abillity to take advantage of new
investment
opportunities or to react quickly on
crisis situation

Cash and cash equivalents

Cash on hand and on deposit and short-term,
highly liquid investments that are readily
convertible to known amounts of cash and which
are subject to an insignificant risk of changes in
value

Steps in Preparation
Determine the change in cash

The difference between beginning and ending cash

balance from examining its comparative statement of
financial position
Analyzing income statement and comparative

statement of financial position

- Direct and Indirect Method

Determine net cash flow of investing and

financing activities
Analyze all other change in the statement of
financial position accounts to determine there effect
on cash

Statement format
Cash Flow from Operating Activities
Operating activities is the primary revenue producing

activities and other activities of the entity that are not

financing or investing activities

Cash Flow from Operating Activities

(Cont.)
Inflow

Outflow

Receipt from sales of

Cash payment to

goods or services,
royalti, and other
income
Receipt from rent and
tax restitution
Receipt from bank
and selling stock

suppliers
Cash payment for
employee
Cash payment for
insurance, purchase
of stock and payment
to creditor
Cash payment for
operational cost

Cash Flow from Operating Activities

(Cont.)
A company may convert net income to net cash

flow from operting activities through two method,

they are:
Direct
Indirect

Cash Flow from Operating Activities

(Cont.)
Direct Method:
Under the direct method, information about major

classes of gross cash receipts and gross cash

payments may be obtained either:
(a) from the accounting records of the entity; or
(b) by adjusting sales, cost of sales (interest and
similar income and interest expense and similar
charges for a financial institution) and other items in
the statement of comprehensive income for:
(i) changes during the period in inventories and operating
receivables and payables;
(ii) other non-cash items; and
(iii) other items for which the cash effects are investing or
financing cash flows.

Cash Flow from Operating Activities

(Cont.)
Indirect Method
Under the indirect method, the net cash flow from

operating activities is determined by adjusting profit or

loss for the effects of:
(a) changes during the period in inventories and
operating receivables and payables;
(b) non-cash items such as depreciation, provisions,
deferred taxes, unrealised foreign currency gains and
losses, undistributed profits of associates, and noncontrolling interests; and
(c) all other items for which the cash effects are
investing or financing cash flows.

Statement Format (Cont.)

Cash Flow from Investing Activities
Investing activities is the acquisition and disposal of

long term asset and other assets that are not cash
equivalent

Cash Flow from Investing Activities

(Cont.)
Inflows

Outflows

Cash receipt from sales

Cash payments to

of fix assets, intangible

assets, and other long
term assets
Cash receipts from
sales of property, plant
and equipment,
intangibles and other
long-term assets
Cash receipts from
sales of equity or debt
instruments of other
entities and interests in

acquire property, plant

and equipment,
intangibles and other
long-term assets
Cash payments to
acquire equity or debt
instruments of other
entities and interests in
joint ventures
Cash receipts from the
repayment of advances
and loans made to

Statement Format (Cont.)

Cash Flow from Financing Activities
Acquisition and disposal of long term asset and

other investments that are not cash equivalent

Cash Flow from Financing Activities

(Cont.)
Inflows

Outflows

Cash receipt from

Cash payment to

isusuing stock
Cash receipt from
debt instruments

owners to buy back

stock issued
Repayment of amount
borrowed
Cash payment from
lessee to deduct the
balance of liabilities
related tofinance
lease

The examples of Cash Flows statement by applying the direct or indirect method
Direct Method (IAS 7.18(a))

Indirect Method (IAS 7.18(b))

Cash flows from operating activities

Cash flows from operating activities

Cash receipts from customers

xx

Profit before taxation

Cash paid to suppliers and employees

Cash generated from operations
Interest received
Dividends received

xx
xx
xx
xx

Adjustments for:
Depreciation
Foreign exchange loss
Investment income
Interest expense
Increase in trade and other receivables
Decrease in inventories
Decrease in trade payables
Cash generated from operations
Interest paid
Income taxes paid

Net cash from operating activities

XX

Cash flows from investing activities

XX

xx
xx
xx
xx
xx
xx
xx
xx
xx
xx

Net cash from operating activities

XX

Cash flows from investing activities

Purchase of property, plant and equipment

xx

Purchase of property, plant and equipment

xx

Proceeds from sale of equipment

Interest received
Dividends received

xx
xx
xx

Proceeds from sale of equipment

Interest received
Dividends received

xx
xx
xx

Net cash used in investing activities

XX

Cash flows from financing activities

Net cash used in investing activities

XX

Cash flows from financing activities

Proceeds from issue of share capital

xx

Proceeds from issue of share capital

xx

Proceeds from long-term borrowings

xx

Proceeds from long-term borrowings

xx

Payment of finance lease liabilities

Dividends paid

xx
xx

Payment of finance lease liabilities

Dividends paid

xx
xx

Net cash used in financing activities

XX

Net cash used in financing activities

XX

Net increase in cash and cash equivalents

XX Net increase in cash and cash equivalents

XX

Cash and cash equivalents at beginning of period

XX Cash and cash equivalents at beginning of period

XX

Cash and cash equivalents at end of period

XX Cash and cash equivalents at end of period

XX

Content, format and classification

Differences in US GAAP and IFRS
US GAAP

IFRS

Cash flows are presented in three

classifications: operating, investing and
financing activities.

Similar

The totals from the three activities (operating,

investing, financing) are summed and this
balance is reconciled with the beginning and
ending cash (and cash equivalents) balances.

Similar

Operating, investing and financing activities

are specifically defined.
Both the direct and indirect method of
presenting cash flows from operations are
allowed.
Entities must disclose their policy for
determining which items are cash
equivalents.

Similar, except for some

differences explained on
a later slide.
Similar
Similar

Content, format and classification

Interest and dividends
US GAAP

Requires that interest paid and

interest and dividends received
be classified as operating cash
flows. Dividends paid are a
financing cash flow because
they are considered a cost of
obtaining resources.

IFRS

Permits an entity: (a) to

classify interest and dividends
paid or received as operating
cash flows; or (b) to classify
interest and dividends paid as
financing cash flows and
interest and dividends received
as investing cash flows.
However, interest and
dividends must be classified in
a consistent manner from
period to period.

Content, format and classification

Interest and dividends (Cont.)
In practice, there may be little practical significance to this difference
because IAS 7 requires separate disclosure of interest paid and
received and of dividends paid and received.
Summary of treatment of interest and dividends:

Cash flow classification

Transaction

IFRS

US GAAP

Interest paid

Operating or financing

Operating

Interest received

Operating or investing

Operating

Dividends paid

Operating or financing

Financing

Dividends received

Operating or investing

Operating

Content, format and classification

Income taxes
US GAAP

Requires that
income taxes paid
be classified as an
operating cash flow.

IFRS

Requires that cash payments or refunds

of income taxes be classified as
operating activities unless they can be
specifically identified with financing or
investing activities. In that case, the tax
cash flows may be classified as financing
or investing activities, as appropriate.

Statements would not necessarily result

in a loss of comparability with US GAAP
since IFRS requires disclosure of the
total amount of income taxes paid.

Content, format and classification

Indirect method
US GAAP

When using the indirect

method of presenting
operating cash flows, the
reconciliation from income to
cash flows must begin with net
income.

IFRS

The particular income line item

that must begin the
reconciliation is not specified.
Thus, an entity could begin the
reconciliation under IFRS with
operating income.

Content, format and classification

Direct method
US GAAP
IFRS
ASC 230-10-45-30 requires that an entity using the
This
direct method of reporting net cash flows from
reconcili
operating activities must provide (in a separate
ation is
schedule) a reconciliation of net income to net cash
not
flows from operating activities.
required.
This has little practical significance, however,
because few enterprises in the United States use the
direct method. The AICPA Accounting Trends and
Techniques 2010 reports that 495 companies of
the 500 surveyed in 2009 used the indirect method
of presenting operating cash flows.

Content, format and classification

Components of cash and cash equivalents
US GAAP

No required disclosure of
the components of cash
and cash equivalents.
Requires that the cash
and cash equivalents
line item in the statement
of cash flows equals the
cash and cash
equivalents in the
statement of financial
position.

IFRS

Required disclosure of the components of cash and

cash equivalents.

The total cash and cash equivalents presented in the

statement of cash flows does not need to agree to a
single line item in the statement of financial position.

Entities must disclose a reconciliation of the

components of cash and cash equivalents to the
amounts presented on the statement of financial
position.

Thus, while users of a statement of cash flows

prepared might not be able to trace changes in
cash and cash equivalents directly between the
statement of financial position and the statement
of cash flows, this difference from US GAAP has
little practical significance.

Disclosures
US GAAP

Prohibits disclosure of cash

flows per share.

IFRS

Does not have restrictions

on the disclosure of cash
flows per share.

Thank You