MPERS Section 7 Statement of Cash Flows

What is the Statement of Cash Flows?

This is the statement showing the inflows and outflows of cash for the reporting period and showing separate changes from operating activities, investing activities and financing activities.

Information to be presented in the Statement of Cash Flows

1) Operating activities

The main activities that generate revenue for the company.

Example:

o Cash receipts from sales and other revenue

o Payments to suppliers and employees

o Payments or refunds of income tax

2) Investing activities

The acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Example:

o Purchase and proceeds from the sale of Property, plant and equipment

o Purchase and proceeds from the sale of marketable securities

o Advance or repayment of advances and loans made to other parties

3) Financing activities

It results in an entity's equity and borrowings changing in size and composition.

Example:

o Proceeds from issuing shares or other equity instruments

o Proceeds from issuing short-term or long-term borrowings and repayment of debts

Method to present the cash flow statement

2 types of methods to represent:

A) Indirect method

Determined by adjusting net Profit or loss for the effects of: -

 Changes in inventories, receivables, and payables;
 Non-cash items, such as depreciation, unrealised foreign currency gains and losses and etc; and
 All other items that relate to investing or financing.

B) Direct method

Major classes of gross cash receipts and payments are disclosed.

Information may be obtained such as:

 From the accounting records; or
 By adjusting sales, cost of sales and other items in the income statement for:
Changes in inventories, receivables, and payables;
Other non-cash items; and
Other items that are investing or financing.

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