CASH FLOW STATEMENT
The objective of IAS 7 (PAS 7 in the Philippines) is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a Cash Flow Statement which classifies cash flows during the period from operating activities, investing activities and financing activities.
BENEFITS OF CASH FLOW STATEMENT INFORMATION
Cash Flow Statement information is vital in assessing the ability of the entity to generate cash and cash equivalents and permits users to develop models to assess and compare the present value of the future cash flows of different entities.
PRESENTATION OF STATEMENT OF CASH FLOWS
The Cash Flow Statement shall report cash flows during the period and shall be divided into 3 sections:
- Operating activities;
- Investing activities; and
- Financing activities.
Cash flows from operating activities are primarily derived from the principal revenue-producing activities of the entity. These activities generally result from the transactions and other events that enter into the determination of profit or loss.
List of transactions included in Operating Activities:
(a) cash receipts from the sale of goods and the rendering of services;
(b) cash receipts from royalties, fees, commissions and other revenue;
(c) cash payments to suppliers for goods and services;
(d) cash payments to and on behalf of employees;
(e) cash receipts and cash payments of an insurance entity 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; and
(g) cash receipts and payments from contracts held for dealing or trading purposes.
Investing activities involve cash flows that represent the extent to which expenditures have been made for resources intended to generate future income and cash flows.
List of transactions included in Investing Activities:
(a) cash payments to acquire property, plant and equipment, intangibles and other long-term assets. These payments include those relating to capitalized development costs and self-constructed property, plant and equipment;
(b) cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;
(c) cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for those instruments considered to be cash equivalents or those held for dealing or trading purposes);
(d) cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (other than receipts for those instruments considered to be cash equivalents and those held for dealing or trading purposes);
(e) cash advances and loans made to other parties (other than advances and loans made by a financial institution);
(f) cash receipts from the repayment of advances and loans made to other parties (other than advances and loans of a financial institution);
(g) cash payments for futures 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; and
(h) cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held for dealing or trading purposes, or the receipts are classified as financing activities.
These activities include cash flows by providers of capital to the entity. List of transactions included in Financing Activities are as follows:
(a) cash proceeds from issuing shares or other equity instruments;
(b) cash payments to owners to acquire or redeem the entity’s shares;
(c) cash proceeds from issuing debentures, loans, notes, bonds, mortgages and other short-term or long-term borrowings;
(d) cash repayments of amounts borrowed; and
(e) cash payments by a lessee for the reduction of the outstanding liability relating to a finance lease.
REPORTING CASH FLOWS FROM OPERATING ACTIVITIES
An entity shall report cash flows from operating activities using either:
(a) the direct method, whereby major classes of gross cash receipts and gross cash payments are disclosed; or
(b) the indirect method, whereby profit or loss is adjusted for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing cash flows.
INTEREST AND DIVIDENDS
Cash flows from interest and dividends received and paid are disclosed separately. Each shall be classified in a consistent manner from period to period as either operating, investing or financing activities.
Investing and financing transactions that do not require the use of cash or cash equivalents shall be excluded from a statement of cash flows. Such transactions shall be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities.
NECESSARY DISCLOSURES FOR CASH FLOW STATEMENT
- An entity shall disclose the components of cash and cash equivalents
- the amount of undrawn borrowing facilities that may be available for future operating activities and to settle capital commitments, indicating any restrictions on the use of these facilities
- the aggregate amounts of the cash flows from each of operating, investing and financing activities related to interests in joint ventures reported using proportionate consolidation
- the aggregate amount of cash flows that represent increases in operating capacity separately from those cash flows that are required to maintain operating capacity
- the amount of the cash flows arising from the operating, investing and financing activities of each reportable segment
- The separate disclosure of cash flows that represent increases in operating capacity and cash flows that are required to maintain operating capacity
- The disclosure of segmental cash flows