We introduced the statment of cash flowas one of the

basic financial statment of business. The statment of cash flow

reports a firms major cash inflows and outflows for a period.
It provide useful information about a firms ability to generate
cash from operation, maintain and expand its operating
capacity, meet its financial obligations, and pay devidends. As a
result, it is used by managers in evaluating past operations and
in palnning future investing and financing activities. It is also
used by investors, creditors, and other in assessing a firms
profit potential.

The statment of cash flows reports cash flows by three types

of activities:
1.

2.

Cash flows from operating activities are cash flows from

transactions that affect net in come. Examples of such
transactions includethe purchase and sale of merchandise by a
retailer.
Cash flows from investing activities are cash flows from
transactions that affect the investments in noncurrent assets.
Examples of such transactions include the sale and purchase
of property, plant, and equipment, such as equipment and
buildings.

3.

Cash flows from financing are cash flows from transactions

that affect the debt and equity of the business. Examples of
such transactions include issuing or retiring equity and debt
securities.

CASH FLOWS FROM OPERATING ACTIVITIES

There are two alternative methods for reporting cash flows from
operating activities in the statment of cash flows:
1.
The direct method reports the sources of operating cash and
the uses of operating cash. The major sources of operating
cash is cash received from customers. The major uses of
operating cash include cash paid to suppliers for merchandise
and services and cash paid to employees for wages. The
difference between these operating cash receipts and cash
payments is the net cash flow from operating activities.

2.

The indirect method reports the operating cash flows by

beginning with net income and adjusting it for revenues and
expenses that do not involve the receipt or payment of cash.
In other words, accrual net income is adjusted to determine
the net amount of cash flows from operating activities.

Direct Method
Cash flows from operating activities:
Cash received from customers
Deduct cash payments for expenses
and payments to creditors

Rp7.500.000
Rp4.600.000

Net Cash flow from operating activities

The same

Rp2.900.000

Indirect Method
Cash flows from operating activities:
Net Income
Add increase in accounts payable
Deduct increase in supplies
Net cash flow from operating activities

Rp3.050.000
400.000
Rp3.450.000
550.000
Rp2.900.000

CASH FLOWS FROM INVESTING ACTIVITIES

Cash flows from investing activities are reported on the
statement of cash flows by first listing the cash inflows. The cash
outflows are then presented. If the inflows are greater than the
outflows, net cash flow provided by investing activities is reported. If
the inflows are less than the outflows, net cash flow used for investing
activities is reported.
Cash flows from investing activities:
Cash payments for purchase of land..... Rp20.000.000

CASH FLOWS FROM FINANCING ACTIVITIES

Cash inflows from financing activities normally arise from issuing
debt or equity securities. Example of such inflows include issuing
bonds, notes payable, and preferred and ordinary share. Cash outflows
from financing activities include paying cash devidens, repaying debt,
and acquiring treasury share.

Cash flows from financing activities:

Cash received as owners investment
Deduct cash withdrawal by owner
Net cash flow provided by financing activities

Rp25.000.000
Rp 2.000.000
Rp23.000.000

NONCASH INVESTING AND FINANCING ACTIVITIES

A business may enter into investing and financing activities
that do not directly involve cash. For example, it may issue ordinary
share to retire long-term debt. When noncash investing and
financing transactions occur during a period, their effect is reported
in a separate schedule. This schedule usually appears at the bottom
of the statement of cash flows.

NO CASH FLOW PER SHARE

The term cash flow per share is sometimes reported in the
financing press. Often, the term is used to mean cash flow from
operations per share. Such reporting may be misleading to users of
the financing statement. For example, users might interpret cash
flow per share as the amount available for devidends.

Statement Of Cash Flows

The Indirect Method

The indirect method of reporting cash flows from operating

activities is normally less costly and more efficient than the direct
method. In addition, when the direct method is used, the indirect
method must also be used in preparing a supplemental
reconciliation of net income with cash flows operations.
Assets
= Liabilities + Equity
Cash + Noncash Assets = Liabilities + Equity
Cash
= Liabilities + Equity Noncash Assets

Cash flows from operating activities:

Net income
Adjustment to reconcilenet income to net cash flow
from operating activities:
Depreciation
Gain on sale of land
Changes in current operating assets and liabilities:
Increase in accounts receivable
Decrease in inventory
Decrease in accounts payable
Increase in accrued expenses
Decrease in income taxes payable
Net cash flow from operating activities

Rp108.000.000

7.000.000
(12.000.000)
(9.000.000)
8.000.000
(3.200.000)
(2.200.000)
(500.000)
Rp100.500.000

CASH FLOWS FROM OPERATING ACTIVITIES

INDIRECT METHOD

Under the accrual method of accounting, revenues and expenses

are recorded at different times from when cash is received or paid. Under
the indirect method, these differences are used to reconcile the net
income to cash flows from operating activities.
Similar adjustments to net income are required for the changes in
the other current asset and liability accounts supporting operations, such
as inventory, prepaid axpenses, accounts payable, and other accrued
expenses.