The document summarizes key aspects of a cash flow statement. It explains that a cash flow statement classifies cash flows into operating, investing and financing activities. It also discusses how a cash flow statement differs from an income statement by using cash basis accounting rather than accrual basis accounting. Specifically, it notes that a cash flow statement includes cash receipts and payments that are excluded from or not part of net income calculations.

1. Cash Flow Statement
Provides information about cash
inflows and outflows
Classification of cash flows:
-Operating activities
-Investing activities
-Financing activities
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2. The Statement Helps Evaluate
 Solvency: Ability to pay debts as they
come due
 Liquidity: Ability to generate adequate
amounts of cash for specific purpose
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3. Net Income Vs. Net Cash Flow
 Net Income:
Accrual basis accounting is followed
 Includes due expenses (salary unpaid), due
revenues ( Earned but not received)
 Excludes prepaid expenses (Insurance paid
in advance) and unearned revenue
(received in advance)
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4. Net Income Vs. Net Cash Flow
 Cash Flows:
Cash basis accounting is followed
 Excludes due expenses (salary unpaid),
due revenues ( Earned but not received)
 Includes prepaid expenses (Insurance
paid in advance) and unearned revenue
(received in advance)
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5. Operating Activities- Cash
Inflows
 Sales of goods or services
 Interest received
 Dividend received
 Other sources not relating to
investment and financing activities
(rent revenue, insurance settlement
etc)
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6. Operating Activities- Cash
Outflows
 Purchase of goods
 Pay to salary or wage
 Interest paid (but not dividend paid)
 Other expenses e.g. advertising,
supplies, travel, miscellaneous etc.
 Other items not relating to investment
and financing activities (contribution to
charities)
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7. Investing Activities
Cash Inflows:
 Sale of property, plant and equipment
 Sale of marketable securities
 Collection of loans
Cash Outflows:
 Purchase of property, plant and equipment
 Purchase of marketable securities
 Making of loans
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8. Financing Activities
Cash Inflows:
 Issuing share or stock
 Issuing debt ( bond, note, mortgage etc)
Cash Outflows:
 Payments of debts
 Repurchasing stock
 Paying cash dividends
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9. Approaches of Operating
Activities
 Direct Approach: Converts individual
income statement items from accrual
to cash basis
 Indirect Approach: Net income is
adjusted to convert to cash basis from
accrual basis
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10.  CA+LTA=TA
 CL+LTL=TL
 OE
 OA=CA & CL
 IA=LTA
 FA=LTL & OE
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11. Indirect Approach: Changes in
Balance Sheet Items
 Operating Section: Changes in Current
Assets and Current Liabilities
 Investing Activities: Changes in Long
Term/Fixed Assets
 Financing Activities: Changes in Long
Term Liabilities and Owner’s Equity
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12. Operating Activities: Indirect Approach
Net Income
+decrease in non-cash assets affecting income
(current assets i.e. A/R, Prepaid Expense )
+increase in non-cash liabilities affecting income
( current liabilities i.e. A/P, salary payable, tax payable)
+ non-cash expenses :depreciation, amortization
-increase in non-cash assets affecting income
-decrease in non-cash liabilities affecting income
=Cash flows from operating activities
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13. Statement of Cash Flows ( Indirect Approach)For the year
ended December 31, 2020
Cash flows from operating activities:
Net Income
+ decrease in current assets
+ increase in current liabilities
-Increase in current assets
-decrease in current liabilities
+Depreciation
Cash flow from investing activities:
-Purchase of plant and equipment
+Proceeds from sale of property
-New investment
+Proceeds from sale of investment
Cash flow from financing activities:
+Proceeds from issuance of common stock
+Proceeds from issuance of debt
-Cash paid for redemption of bonds/ debenture
-Dividend paid
Net increase (decrease) in cash during the period
Add: Beginning balance
Cash at hand at the end of the period
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