Chapter 4

Statement of Cash Flows

What is Statement of Cash Flow?
Statement of Cash Flow
• the financial statement that explains the net change in cash
for the year
• reports cash flow transactions during the year classified by
operating, investing and financing activities.
• Operating activities are related to the main revenue-
producing activities of the business
• Investing activities are related to acquisition and disposal of
long-term assets such as property, plant and equipment, and
intangible assets
• Financing activities are cash transactions with equity owners
and creditors
Examples of cash flow transactions reported
under operating activities:
•Cash received from customers ( cash receipts
from sale of goods and rendering of services)
•Cash received from fees, commissions, and other
income
•Cash payments to supliers
•Cash payments to employees
•Cash payments for other operating expenses
•Interest payments
Examples of cash flow transactions reported
under investing activities:
•Cash payments to acquire PPE, intangible assets
and other long-term assets
•Cash receipts from sale of PPE, intangible assets,
and other long-term assets
•Cash loans made to other parties (long-term
note receivable)
•Cash collection on long-term note receivable
Examples of cash flow transactions reported
under financing activities:
•Cash received from issuing common shares (or
capital contribution from owners)
•Cash received from issuing notes or getting a
long-term loan from a bank
•Cash dividends distributed to shareholders
•Cash withdrawals of owners
•Cash payment for principal of long-term loan
Discussion Questions
1. What is a Statement of Cash Flows (SCF)
2. Enumerate the three sections of Statement of
Cash Flows.
3. Identify the transactions reported under cash
flow from operating activities.
4. What are the implications of positive cash flows
from operations?
Discussion Questions
5. Identify the transactions reported under cash
flow from investing activities?
6. What are the implications of negative cash flow
from investing activities?
7. Identify the transactions reported under cash
flow from financing activities.
Review Questions:

1-3. What are the three classifications of

business activities in a cash flow transactions?

4. The financial statement that explains the net

change in cash for the year.

5. These activities are related to the main

revenue-producing activities of the business.
 True or False
6. Cash payment for bank loans are reported under cash
flows from operating activities.
7. Payments for acquisition of merchandise inventory are
reported as investing activities.
8. Salary and utility payments are reported as operating
activities.
9. A negative cash flow from investing activities is a bad
indicator of the company's ability to generate cash.
10. The bottom line of the Statement of Cash Flows is
equivalent to the cash balance presented on the
Statement of Financial Position.
Classify the ff. according to three major
activities of the business:
11. Cash received from customers
12. Interest paid
13. Cash drawings of owners
14. Cash contributions from owners
15. Payments to suppliers
16. Principal payments for bank loans
Classify the ff. according to three major
activities of the business:
17. Salaries paid
18. Utilities paid
19. Payment to acquisition of equipment
20. Cash received from sale of land
 ABC Company
Statement of Cash Flows
For the Year Ended December 31, 2021
Cash Flows from Operating Activities
Cash transactions xxx
Net cash provided by (used in) operating activities xxx

Cash Flows from Investing Activities

Cash transactions xxx
Net cash provided by (used in) investing activities xxx

Cash Flows from Financing Activities

Cash transactions xxx
Net cash provided by (used in) financing activities xxx
Net change in cash xxx
Add: Cash and cash equivalents, January 1, 2021 xxx
Cash and cash equivalents, December 31, 2021 xxx
 T-Account of Cash of ABC Company
January 1, 2021 P120,000
1/15 Cash from cash sales 1,000
2/18 Collection of Accounts Receivable 20,000
3/28 Cash from cash sales 1,500
5/20 Collection of Accounts Receivable 34,000
6/17 Cash from cash sales 5,600
7/17 Additional contribution from the owner 75,000
9/01 Proceeds from bank borrowing 150,000
10/15 Collection of Accounts Receivable 13,000
11/21 Collection of Accounts Receivable 44,600
Total debits 464,700
December 31, 2021 P267,850
 T-Account of Cash of ABC Company
2/02 Payment to suppliers 22,000
3/16 Payment of utility bills 7,890
4/15 Payment to employees 35,000
6/01 Acquisition of computers 60,000
7/01 Rent payments 25,000
12/31 Loan payment 18,760
12/31 Interest payment 7,500
12/31 Owner's drawings 4,000
Total credits 196,850
 The cash account of XYZ Company has a beginning balance of P129,937.50. The table
show the summarized transactions from the cash account of XYZ Company.

• Cash received from customers P725,175.00

• Payments to suppliers 300,547.50
• Salaries paid 19,992.50
• Purchase of equipment 253,000.00
• Sale of delivery equipment(motorcycle) 6,875.00
• Proceeds from sale of computer equipment 42,762.50
• Withdrawals of owners 229,350.00
• Proceeds from bank loan 182,500.00
• Contributions of owners 137,500.00
• Interest paid 8,085.00
• Collection of Accounts Receivable P85,125.00
• Payments of utility bills 10,322.25
• Rent payments 12,000.00
• Loan payment 22,500.00
• Cash loans granted to other parties 300,000.00
• Interest received from notes receivable 16,220.00

• Required: Prepare a Statement of Cash Flow using the direct

method.