Turorial in

making SOC
CHAPTER 4
Statement of
Cash Flows
What Is the Statement of Cash
Flow (SCF)?
 Sections of the SCF

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.
 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
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.
 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.
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.
T-account of Cash
T-account of Cash
T-account of Cash
Preparing the SCF

DIRECT METHOD
Preparing the SCF
Preparing the SCF