An Accomplishment: A Cash Flow Journey

Have Fun with Cash Flow

Come to learn more about cash flow. It is classified into three categories: operational, investment, and financial activities. When showing the cash flow of operating expenses via the direct and indirect methods. Examples of cash flows that are included and excluded from the statement. How interest and dividends work, and the required disclosure.

Philippine Accounting Standard (PAS) 7, which is the Statement of Cash Flow, talks about how to identify and understand the statement of cash flows. It describes the sources and uses of cash and cash equivalents during the period. This section comprises cash flow, which includes both inflows (sources) and outflows (uses) of cash and cash equivalents. So, what are cash and cash equivalents? Cash comprises both cash on hand and cash in the bank. Meanwhile, cash equivalents are "short-term," highly liquid investments that can be easily converted to known sums of cash but are vulnerable to severe value fluctuations. Moreover, let's talk about the types of cash flow. First, operating activities are primarily determined by an entity's primary revenue-producing operations. Includes cash inflows and outflows on revenue and expense items, as well as those used to calculate profit or loss. Next, we discuss investing operations, which include the acquisition and disposal of non-current assets and other investments. The last classification is financing activities, which are those that affect the entity's equity capital and borrowing structure.

Let us now look at the general concept of preparing a cash flow statement. When preparing a cash flow statement, income is only recognized when it is collected. Expenses are only recognized once they have been paid. Only transactions involving cash and monetary equivalents are considered. Non-cash transactions are omitted and disclosed exclusively. Interest and dividends, where companies (with the exception of financial institutions) must classify cash flows based on interest and dividends. Only when your cash flow includes interest income do you have two options: operational activity and investment activity. Moving on to the next topic will be the presentation of operating cash flow. There are two methods for showing it. The first is the direct method, which shows each main category of gross cash receipts and gross cash payments. The second approach is the indirect method, which adjusts the profit or loss to account for non-cash factors as well as changes in operating assets and liabilities. Though PAS 7 does not require a specific method, both are valid. However, PAS 7 recommends the direct technique since it gives information that can be used to estimate future cash flow that the indirect method does not. Then again, the indirect method is more widely utilized since it is simpler to apply. Moving on to the presentation of operating cash flow. There are two methods for showing it. The first is the direct method, which visualizes each main category of gross cash receipts and gross cash payments. The second approach is the indirect method, which adjusts the profit or loss to account for non-cash factors as well as changes in operating assets and liabilities. Therefore, PAS 7 does not require a specific procedure; both are valid. Nonetheless, PAS 7 recommends the direct technique since it gives information that can be used to estimate future cash flow that the indirect method does not. Nevertheless, the indirect method is more widely utilized since it is simpler to apply. Investing activities include cash flow from acquiring and disposing of subsidiaries or business units that result in loss or gain of control, while financing activities do not. PAS 7 requires a reconciliation of cash and cash equivalents in the statement of cash flow, as well as significant cash and cash equivalents held by an entity that are not available for group use.