ACEBA Systems Technology Institute Inc.

Senior High School

Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

Fundamentals of Accountancy, Business and Management 2

Module WEEK 5
Statement of Cash Flows

Objectives:
By the end of this chapter, the student should be able to:
1. Appreciate the significance of the information presented in the Statement of Cash
Flows;
2. Identify the sections of the Statement of Cash Floes;
3. Classify cash flows into operating, investing and financing activities;
4. Understand the transaction recorded in the t-account of cash; and
5. Prepare the operating section of the Statement of Cash Flows from completed
Statements of Financial Position and Statement of Comprehensive Income.

What is a Statement of Cash Flows?

CASH FLOW STATEMENT – Provides an analysis of inflows and/or outflows of cash
from/to operating, investing and financing activities (Deloitte Global Services Limited,
2015). This statement shows cash transactions only compared to the SCI which follows the
accrual principle. Importance: The CFS provides the net change in the cash balance of a
company for a period. This helps owners see if their revenues are actually translated to cash
collections or if they have enough cash inflows in order to pay any maturing liabilities.

LEARNING IS FUN COMPANY

CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2016

Cash flows from Operating Activities

Receipts from Customers P 1,000,000
Payments to Suppliers and Employees (700,000)
Net Cash generated by Operating Activities P 300,000
Cash flows from Investing Activities
Purchases of Property and Equipment (P 150,000)
Net Cash used in Investing Activities (P 150,000)
Cash flows from Financing Activities
Long term loan from a bank P 300,000
Additional investment from owner 100,000
Withdrawals by owner (80,000)
Net cash generated by Financing Activities P 320,000
Net increase in cash and cash equivalents P 470,000
Cash, January 1, 2016 100,000
Cash, December 31, 2016 P 580,000
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

Receipts from customers - derived from the following formula:

Ending Accounts Receivable = Beginning Accounts Receivable + Net Sales – Collections
Therefore: Collections (receipts from customers) = Beginning Accounts Receivable + Net
Sales or Net Revenue –Ending Accounts Receivable

Accounts Receivable T-Account

Dr Cr
Beginning Balance + Net Sales Collections
Ending Balance

Payments to Suppliers and Employees – derived from the following formula:

Ending Accounts Payable and Ending Accrued Salaries Expense = Beginning Accounts
Payable + Beginning Accrued Salaries Expense + Net Purchases + Salaries Expense -
Payments

Therefore: Payments = Beginning Accounts Payable + Beginning Accrued Salaries Expense

+ Net Purchases + Salaries Expense – Payments

Accounts Payable T-Account

Dr Cr
Payments Beginning Balance + Net Purchases +
Salaries Expense
Ending Balance

Differentiate the Direct and Indirect Approach of the CFS

Direct – The operating cash flow section of the CFS under the direct method would show
each major class of gross cash receipts and gross cash payments (Deloitte Global Services
Limited, 2015).
Indirect – The operating cash flow section of the CFS under the indirect method will
reconcile the net income/loss of the company with the total cash flows generated/used in
operating activities by adjusting the net income/loss for effects of non-cash transactions
(Deloitte Global Services Limited, 2015).
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

Different parts of the Cash Flow Statement

Operating Activities – Activities that are directly related to the main revenue-producing
activities of the company such as cash from customers and cash paid to suppliers/employees
(Deloitte Global Services Limited, 2015).

Investing Activities – Cash transactions related to purchase or sale of non-current assets

(Deloitte Global Services Limited, 2015).

Financing Activities – Cash transactions related to changes in equity and borrowings.

Net change in cash or net cash flow (increase/decrease) – The net amount of change in
cash whether it is an increase or decrease for the current period. The total change brought by
operating, investing and financing activities.

Beginning Cash Balance – The balance of the cash account at the beginning of the
accounting period.

Ending Cash Balance – The balance of the cash account at the end of the accounting period
computed using the beginning balance plus the net change in cash for the current period.

Sample questions:
Easy:
1. Gain on sale of property and equipment is part of what activity in the CFS?
Answer: noncash transaction but part of operating activity if indirect
2. Changes in long term liabilities is part of what activity in the CFS?
Answer: financing

Average:
1. Net income is part of which Approach in preparing the CFS?
Answer: indirect
2. The company presented the following in order to aid the accountant in preparing the
CFS: a. Net income: P200,000
b. Depreciation expense : P 25,000
c. Gain on sale of property and equipment: P100,000
d. Decrease in trade and other receivables: P 70,000
e. Purchase of property and equipment: P200,000
f. Payment of loan from bank: P150,000
 ACEBA Systems Technology Institute Inc.
Senior High School
Track : Academic
Strand : Accountancy, Business and Management
Specialization : Bookkeeping NCIII
Grade : 12
Grading Period : 1st Sem. (sy.2020-2021)
Prepared by : Mr. Renniel L. Apuro

Compute for the cash generated/used in financing activities.

Answer: P150,000 net cash used in financing activities

Difficult:
1. Based on the given above, compute for the net change in cash for the year.
Answer:: (P155,000) net change in cash

2. If ending balance of cash account is P700,000, prepare the CFS for the year. Suggested
Answer:
NAME OF COMPANY
CASH FLOW STATEMENT
FOR THE YEAR ENDED (YEAR-END)
Cash flows from Operating Activities
Net income P 200,000.00
Add back:
Depreciation Expense 25,000.00
Less:
Gain on sale of property and equipment (100,000)
P 125,000.00
Decrease in trade and other receivables-net 70,000.00
Net cash flow generated from operating activities P 195,000.00
Cash flow from investing activity
Purchase of property and equipment (P 200,000.00)
Net cash flow generated from investing activity (P 200,000.00)
Cash flow from financing activity
Paid loan from a bank (P 150,000.00)
Net cash flow from used in financing activity (P 150,000.00)
Net change in cash (P 155,000.00)
Cash, Beginning 855,000.00
Cash, Ending P 700,000.00