CHAPTER 12 – REPORTING CASH FLOW Cash flow statement - - Reporting the causes of changes in cash is useful because investors, creditors, and other interested parties want to know what is happing to a company’s most liquid source (cash). Where did the cash came from during the period? What was the cash used for during the period? What was the change in the cash balance during the period? Classification of Cash Flows: 1. Operating activities - includes all accounts found in income statement (revenues and expenses) - it is the most important category because it shows the cash provided or used by company operations - cash provided by operations is generally considered to be the best measure of whether a company can generate sufficient cash to continue as a going concern and to expand. - inflow: pumpasok na pera sa business (revenues, interest income) - outflow: lumalabas na pera (payment of expenses) 2. Investing activities - purchasing and disposing of investments and productive long-lived assets using cash - lending money and collecting the loans 3. Financing activities - obtaining cash from issuing debt and repaying the amounts borrowed - obtaining cash from stockholders and paying them dividends Direct method - It is a method creating the cash flow statement in which actual cash flow information from the company’s operations segment is used, instead of accrual accounting values. The direct method is also known as income statement method Indirect method - - Focuses more on increase/decrease of cash balance Adjusts net income for the changes in balance sheet accounts to calculate the cash from operating activities Changes in asset and liability accounts that affect cash balances throughout the year are added to or subtracted from the net income at the end of the period to arrive at the operating cash flow Decrease in asset: add Increase in asset: subtract Decrease in liability: subtract - Increase in liability: add Decrease in inventory: add
