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Write Up Components and Structures

This document discusses the components and structure of a cash flow statement. It describes the three main components: operating activities, investing activities, and financing activities. It also explains the two methods for structuring a cash flow statement - the direct method and indirect method. The direct method shows actual cash flows, while the indirect method uses accrual accounting information.

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John Fort Edwin Amora
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41 views

Write Up Components and Structures

This document discusses the components and structure of a cash flow statement. It describes the three main components: operating activities, investing activities, and financing activities. It also explains the two methods for structuring a cash flow statement - the direct method and indirect method. The direct method shows actual cash flows, while the indirect method uses accrual accounting information.

Uploaded by

John Fort Edwin Amora
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ddaWoodridge College

Soldiers’ Hills IV, Molino 6 Bacoor, Cavite

Components and Structure of a Cash Flow


Statement

Fundamentals of Accountancy and Business


Management
ABM 4

Reported by: John Fort Edwin E. Amora


Grade 12 ABM

Submitted to: Prof. Lester Concepcion

First Semester
SY 2018-2019
Components of a Cash Flow Statement
 Operating Activities
Operating activities are the principle revenue producing activities of the enterprise
and other activities that are not investing and financing activities. Hence, these are
the results of those transactions and events that determines the net profit or loss.
Examples are:
a. Cash receipts from the sale of goods and the rendering of services
b. Cash receipts from royalties, fees, commissions and other revenues
c. Cash payments to suppliers of goods and services
d. Cash payments to and on behalf of employees
e. Cash receipts and cash payments of an insurance enterprise for premiums and
claims, annuities and other policy benefits
f. Cash payments or refunds of income taxes unless they can be specifically
identified with financing and investing activities
g. Cash receipts and payments relating to future contracts, forward contracts,
option contracts and swap contracts when the contracts are held for dealing or
trading purposes.

 Investing Activities
Investing activities include the acquisition and disposal of long-term assets and
other investments not included in cash equivalents. The separate disclosure of
cash flows arising from investing activities is important.
Examples are:
 Cash payments to acquire fixed assets (including intangibles)
 Cash receipts from disposal of fixed assets (including intangibles)
 Cash payments to acquire and cash receipts from disposal of shares, warrants or
debt instruments of other enterprises and interests in joint ventures.
 Cash advances and loans made to 3rd parties
 Cash payments and receipts for future contracts, forward contracts, option
contracts and swap contracts except when the contracts are held for dealing or
trading purposes, or the payments are classified as financing activities

 Financing Activities
The separate disclosure of cash flows arising from financing activities is
important because it is useful in predicting claims of future cash flows by
providers of funds (both capital and loan) to the enterprise. Financing activities
are activities that result in changes in the size and composition of the owner’s
capital (including preference share capital in the case of a company) and
borrowings of the enterprise.
Examples are:
 Cash proceeds from issuing shares or other similar instruments
 Cash proceeds from issuing debentures, loans, notes, bonds and other short or
long-term borrowings, and
 Cash repayments of amounts borrowed such as redemption of dentures, bonds,
preference shares.

Structures of a Cash Flow Statement


 Direct Method- The direct method is a method of creating the cash flow statement
in which actual cash flow information from the company's operations segment is
used, instead of accrual accounting values.
 The direct method is also known as the income statement method.
Examples:


 Indirect Method
- The indirect method is an accounting treatment used to generate a statement of
cash flows which a company may use during any given reporting period. The
indirect method uses accrual accounting information to present the cash flows
from the operations section on their cash flow statement.
- Many accountants prefer the indirect method because it’s fairly easy to
prepare from the accounts businesses ordinarily maintain as part of the chart
of accounts. However, regulators and standards-setting bodies are less in favor
of its use as it doesn’t offer a clear a picture of cash flows throughout a
business.
Example:
Sources:
Frias,S.F (2016) Fundamentals of Accountancy, Business and Management: A textbook in Basic
Accounting 2. Quezon City, Philippines: The Phoenix Publishing House
Staff, I. (2018, May 01). Indirect Method. Retrieved from
https://www.investopedia.com/terms/i/indirect_method.asp
The Statement of Cash Flows: Structure and Intuition. (2016, May 13). Retrieved from
http://businessjournalism.org/2016/04/statement-cash-flows-structure-intuition/
Peter, H. (2017, February 27). Components of cash flow statement. Retrieved from
https://www.slideshare.net/HeadsonPeter/components-of-cash-flow-statement
Cash Flow Statement - AccountingVerse. (n.d.). Retrieved from
https://www.accountingverse.com/accounting-basics/cash-flow-statement.html
Cash flow statement indirect method. (n.d.). Retrieved from
https://www.accountingtools.com/articles/2017/5/17/cash-flow-statement-indirect-method
Momoh, O. (2017, November 14). Direct Method. Retrieved from
https://www.investopedia.com/terms/d/direct_method.asp

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