The statement of cash flows is presented into operating, investing and financing activities. Operating activities are the main revenue-producing activities of the entity that are not investing or financing activities. These activities may include cash received from customers, cash paid to suppliers or employees, interest paid, income taxes paid, and cash paid for other operating expenses.

Investing activities are the acquisition and disposal of long-term assets (such as property and equipment, investment in associates and subsidiaries and investments in bonds) and other investments not considered to be cash equivalents.

Financing activities are activities that alter the equity capital and borrowing structure of the entity. These activities include proceeds from issuance of shares, cash receipts from obtaining loans and payment of those loans.

Interest and dividends received and paid may be classified as operating, investing, or financing activities, as long as they are classified consistently from period to period. Cash flows arising from taxes on income are normally classified as operating, unless they can be specifically identified with financing or investing activities.

The operating portion of a statement of cash flow can be presented using direct method or indirect method. Direct method presentation is encouraged, but the indirect method is acceptable. The direct method shows each major class of gross cash receipts and gross cash payments. The indirect method adjusts accrual basis net profit or loss for the effects of non-cash transactions.

The statement of cash flows shows how the changes of accounts in the statement of financial position and income affect an entity’s cash and cash equivalents. The statement gives users a picture of the flow of cash flowing in and out of the business.

Users of statement of cash flow include creditors, who needs to know the entity’s ability to repay its obligations; investors, who want to know if a business is sound and can guarantee return of investment; employees, who need to know whether a company can pay them the right compensation; and owners and shareholders, who want to assess if the business can be able to distribute dividends.

Reference:
International Accounting Standards Board (IASB)

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Based on International Accounting Standard (IAS) 1 as amended, issued by the International Accounting Standard Board (IASB), the comprehensive income consists of changes in revaluation surplus; actuarial gains and losses on defined benefit plans recognised in accordance with IAS 19; gains and losses arising from translating the financial statements of a foreign operation; gains and losses on remeasuring available-for-sale financial assets, and the effective portion of gains and losses on hedging instruments in a cash flow hedge. These items are not part of the net profit or net income, but included in the statement to give its users the clear view of an entity’s results of operations, and the operating and financial events that have changed the worth of an owner’s interest in a business.

The components of statement of comprehensive income include the following items:

• revenue
• finance costs
• share of the profit or loss of associates and joint ventures accounted for using the equity method
• tax expense
• a single amount comprising the total of (i) the post-tax profit or loss of discontinued operations and (ii) the post-tax gain or loss recognised on the disposal of the assets or disposal group(s) constituting the discontinued operation
• profit or loss
• each component of other comprehensive income classified by nature
• share of the other comprehensive income of associates and joint ventures accounted for using the equity method
• total comprehensive income

The following items must also be disclosed in the statement of comprehensive income as allocations for the period:

• profit or loss for the period attributable to non-controlling interests and owners of the parent
• total comprehensive income attributable to non-controlling interests and owners of the parent

Aside from the above items, additional line items may be needed to fairly present the entity’s results of operations. Extraordinary items are not already permitted to be presented in the statement of comprehensive income.

By reading the statement of comprehensive income, the user can assess the revenues, cost, expenses, other income, and other comprehensive income of a business enterprise for the accounting period ended. The net profit or total comprehensive income of a particular company indicates its performance and how its operations went. It answers the question whether if a business incurs a comprehensive loss or comprehensive income for the period. This statement can be very important for owners, investors, creditors and even the estate or government in analyzing profitability, return on equity, return on investment, ability to pay interests on debts, and income taxes.

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What is a statement of financial position?
A statement of financial position, as popularly known as a balance sheet, is one of the basic components of a complete set of financial statements. It is commonly described as a snapshot of an entity’s financial condition as at the end of an accounting period. A standard statement of financial position comprises of assets; liabilities; and owners’, stockholders’ or members’ equity. Assets and liabilities are further divided into current (short-term) or non-current (long-term).

The statement of financial position shows the accounting equation that equals assets to liabilities plus equity. The excess of assets after deducting liabilities is known as the equity or net worth of a business or entity. Current assets include cash and cash equivalents, receivables, inventories, short-term investments and prepayments. Non-current or long-term assets include property and equipment, intangible assets (e.g., goodwill, trademarks and copyrights), long-term investments (such as investment in equity or debt securities), and other non-current assets.

Current liabilities may consist of trade payables (accounts payable), short-term borrowings, and other curret liabilities. Non-current or long-term liabilities may include long-term debts, retirement obligations and other non-current liabilities. Equity may compose of owners’ paid-up capital and accumulated or retained earnings.

What are uses and purpose of a statement of financial position?
The statement of financial position gives its readers and users the financial condition of a certain entity. It shows the liquidity (the ability to readily convert its assets into cash) and solvency (the ability to pay or settle its maturing obligation) of a particular business. It is in this statement that users can identify the strengths and capabilities of a certain entity. Trends such as current ratio (measures solvency), quick ratio (measures liquidity) and debt-to-equity ratio (measures financial and capital risks) can be identified and analyzed in the statement of financial position.

A simple personal statement of financial position gives us the ability to identify our assets or resources we controlled as a result of past events and from which future economic benefits are expected to flow to us; and our liabilities or obligations arising from past transactions or event, the settlement of which may result in the transfer or use of our owned assets, provision of our services or other yielding of economic benefits in the future.

If you are a creditor, you can look and analyze the statement of financial position of a particular company to determine if that company is capable of repaying their obligations before they mature, simply by looking at their quick and current assets and evaluating their debt-to-equity ratio. If you are an investor in a certain company, you can also examine the statement of financial position of your investee company to evaluate its stability and capability to expand operations and increase profitability and financial strength in the long run.

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