101

1. ACCT101 Accounting and
Financial Management
Week #7 and Week #8
ACCT101-Week 7 and 8 1

2. WEEK 7 and 8 - TOPICS
• Basic Financial Statement: Statement of
Cash Flows (SOCF)
• Practice Exercise SOCF
ACCT101-Week 7 and 8 2

3. Statement of Cash Flows (SOCF)
Definition and Purpose
• To provide information about the cash receipts
and disbursements of an organization over a
period of time and the extent to which resources
were obtained from or used in operating,
investing , or financing activities during the
period.
• It presents Cash inflows and Cash Outflows by 3
types of activities: Operating Activities, Investing
Activities and Financing Activities
ACCT101-Week 7 and 8 3

4. Statement of Cash Flows (SOCF)
Primary Purpose
• To assist management, creditors, donors, and
others in assessing the ability of the organization
to meet its cash needs.
• To present the cash activities of the organization.
• To provide additional information about how the
organization receives and spends its cash.
ACCT101-Week 7 and 8 4

5. STATEMENT OF CASH FLOWS
EQUATION
Beginning Cash
+
Cash Receipts During the Period
-
Cash Disbursements During the Period
=
Ending Cash Balance
(as reported the Statement of Financial Position )
NOTE: For purposes of this statement, cash includes
cash held in bank and cash equivalents)
ACCT101-Week 7 and 8 5

6. Statement of Cash Flows (SOCF)
Types of Presentation
• Direct Method: Statement starts by listing all sources of
cash from operations during the period and deducts all
operating outflows of cash to arrive at the net cash flows
from operations. Similar approach followed to arrive at
net cash flow from Financing and Investing activities. A
reconciliation of Change in Net Assets to the Cash Flows
provided by Operating Activities is required. (See Page
60, Exhibit 2.5)
• Indirect Method: Method begins the cash flows from
operating activities with the change in net assets for the
period and adjusts backward to reconcile the change in
net assets to net cash flows (See Page 61, Exhibit 2.6).
ACCT101-Week 7 and 8 6

7. Statement of Cash Flows (SOCF)
Two Ways of Presenting Cash Flows From
Operations
The Direct Method
The Indirect Method
The FASB concluded the not-for profit
organizations should be encouraged to use
the direct method of reporting net cash flows from
operations. This method is considered the easier
to calculate. However, the indirect method is
allowed.
ACCT101-Week 7 and 8 7

8. Statement of Cash Flows (SOCF)
Major Components of the SOCF
• The Heading of the Statement
• Cash Flows from Operating Activities
• Cash Flows from Investing Activities
• Cash Flows from Financing Activities
• Net Change in Cash and Cash Equivalents
• Cash and Cash Equivalents at the End of Year
ACCT101-Week 7 and 8 8

9. STATEMENT OF CASH FLOWS
Operating Activities
Cash inflows:
 Contributions ( other than long-term restricted contributions)
 Grants
 Receipts from the sale of goods or services
Cash Outflows:
 Disbursements made for program activities
 Disbursement made to employees, vendors, and contractors
 Payments of interest and taxes
 Grants made by organizations to other organizations
ACCT101-Week 7 and 8 9

10. STATEMENT OF CASH FLOWS
Investing Activities
Cash Inflows:
 Sale of property, plan and equipment
 Collection of loans
 Disposing of debt (bonds) and equity instruments (stocks)
Cash Outflows:
 Purchase of property plant and equipment
 Disbursement of loans
 Acquiring of debt (bonds) and equity instruments (stocks)
ACCT101-Week 7 and 8 10

11. STATEMENT OF CASH FLOWS
Financing Activities
Cash Inflows:
 Receipts of contributions from donors that are restricted for long-
term purposes
 Receipts from issuance of membership shares in a social or county
club
 Interest and dividends restricted fro long-term use
 Short and long-term borrowings
Cash Outflows:
 Repayment of short and long term debt
 Repayments of capital leases
ACCT101-Week 7 and 8 11

12. Statement of Cash Flows
Steps in Preparing the SOCF
1. From the list of transactions, statement of activities and statement
of financial position, identify cash inflows and cash outflows by
type of activities (operating, investing and financing)
2. Prepare the Heading of the statement
3. Work on the Cash Flows from Operating Activities
4. Work on the Cash Flows from Investing Activities
5. Work on the Cash Flows from Financing Activities
6. Compute the Change in Cash and Cash Equivalents
7. Compute Cash and Cash Equivalents at End of Year
8. Under the Direct Method, prepare the Reconciliation of change in
Net Assets to Net cash provided by Operating Activities.
ACCT101-Week 7 and 8 12