Turorial in making soc 1

4. 1. Operating activities
 Cash flows from operating activities are primarily derived from
the main revenue producing activities of the business, which
means that the transactions reported in this section represents
the cash components of the events that enter into the
determination of net income in the SCI.
 On revenue: Revenue is reported on the SCI on the year when
goods and services are delivered. On the other hand,
collections from customers will be reported on the SCF on the
year when cash is received.
 On expenditures: Expenses are reported on the SCI based on
three accrual approaches – matching principle, rational
allocation and immediate recognition. However, the cash
disbursements for these expenses are reported on the SCF on
the year payments are made.

5.  The SCI shows a net income computed based on accrual. On the
other hand, SCF shows net cash flows provided by or used in
operating activities.
 Examples of cash flow transactions reported under operating
activities are:
a.Cash received from customers (cash receipts from sale of
goods and rendering of services)
b.Cash received from fees, commissions, and other income
c.Cash payments to suppliers
d.Cash payments to employees
e.Cash payments for other operating expenses
f. Interest payments

6. 2.Investing activities
Reported within this section are cash used for acquisition of
property, plant and equipment, intangible assets and other long
term assets as well as cash proceeds from the disposals of such
long term assets.
Cash flows from investing activities hints on the company’s ability
to generate cash in the future.
A negative cash flows from investing activities implies that the
company used cash to acquire long-term assets intended to
generate cash and revenue in the future. On the other hand, a
positive cash flow from investing activities may indicate that the
company is divesting or downsizing.

7. Examples of cash flow transactions reported under investing
activities:
a. Cash payments to acquire property, plant and equipment,
intangibles and other long-term assets.
b. Cash receipts from sale of property, plant and equipment,
intangibles and other long-term assets.
c. Cash loans made to other parties (long term note receivable).
d. Cash collection on long term note receivable.

8. 3. Financing activities
Cash flow from financing activities is the last section of the SCF.
This section reports cash received and cash paid to equity owners
and long-term creditors.
Examples of cash flow transactions reported under financing
activities:
a.Cash received from issuing common shares (or capital
contribution from owners).
b.Cash received from issuing notes or getting a long term loan
from a bank.
c.Cash dividends distributed to shareholders.
d.Cash withdrawals of owners.
e.Cash payment for principal of long-term loan.

12. DIRECT METHOD