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CASH FLOW STATEMENT

1. PREPARE A PERSONAL CFS: (10 MINUTES)


A. GET A ¼ PIECE OF PAPER (ANY PAPER WILL DO IF THEY DON’T HAVE A ¼ SHEET)
B. WRITE YOUR MONTHLY ALLOWANCE (COMPUTED BY DAILY ALLOWANCE X NUMBER OF DAYS
IN A MONTH) AND ANY LIABILITIES THAT THEY GOT FROM CLASSMATES, FRIENDS, FAMILY
MEMBERS
C. WRITE THE AMOUNT THEY SPEND ON FOOD, TRANSPORTATION, ETC. (MAKE IT MONTHLY TO
MATCH YOUR ALLOWANCE)
D. DEDUCT THE AMOUNT THEY SPEND FROM THE AMOUNT YOUR ALLOWANCE
E. ASSOCIATE ALLOWANCE WITH INFLOWS AND SPENDING WITH OUTFLOWS
F. CFS IS DIFFERENT FROM THE SCI AS THE SCI WILL INCLUDE NON-CASH ITEMS (ACCRUALS,
DEPRECIATION) WHILE THE CFS WILL ONLY INCLUDE CASH ITEMS
CASH FLOW STATEMENT

PROVIDES AN ANALYSIS OF INFLOWS AND/OR OUTFLOWS OF


CASH FROM/TO OPERATING, INVESTING AND FINANCING
ACTIVITIES. THIS STATEMENT SHOWS CASH TRANSACTIONS ONLY
COMPARED TO THE SCI WHICH FOLLOWS THE ACCRUAL PRINCIPLE
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
DIRECT APPROACH

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.
INDIRECT APPROACH

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
C. SAMPLE OF THE INDIRECT METHOD

C.I. FIRST PART IS OPERATING ACTIVITIES


C.I.I. NON-CASH EXPENSES ARE ADDED BACK WHILE NON-CASH REVENUES ARE DEDUCTED.
GAIN/LOSS ON SALE OF NON-CURRENT ASSETS ARE DEDUCTED/ADDED BACK
BECAUSE THE CASH TRANSACTION IS RECORDED UNDER INVESTING ACTIVITIES.
C.I.II.CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES ARE EITHER ADDED OR
DEDUCTED DEPENDING ON WHETHER THEY INCREASED OR DECREASED DURING THE
YEAR.
INCREASE IN CURRENT ASSETS – DEDUCTED TO NET INCOME
ACCOUNTS RECEIVABLE – INCREASES REVENUE WHICH INCREASES NET INCOME BUT IS
NOT A CASH TRANSACTION
PREPAID EXPENSE – DECREASES CASH BUT DOES NOT CHANGE THE NET INCOME
PARTS OF 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
• INVESTING ACTIVITIES – CASH TRANSACTIONS RELATED TO
PURCHASE OR SALE OF NON-CURRENT ASSETS
• FINANCING ACTIVITIES – CASH TRANSACTIONS RELATED TO
CHANGES IN EQUITY AND BORROWINGS.
DECREASE IN CURRENT ASSETS – ADDED TO NET INCOME
ACCOUNTS RECEIVABLE – INCREASES CASH BUT DOES NOT CHANGE THE NET INCOME
PREPAID EXPENSE – INCREASES EXPENSES WHICH DECREASES NET INCOME BUT IS NOT A
CASH TRANSACTION
INCREASE IN CURRENT LIABILITIES – ADDED TO NET INCOME
ACCOUNTS PAYABLE – INCREASES EXPENSES WHICH DECREASES NET INCOME BUT IS NOT A
CASH TRANSACTION
UNEARNED INCOME – INCREASES CASH BUT DOES NOT CHANGE THE NET INCOME
DECREASE IN CURRENT LIABILITIES – DEDUCTED TO NET INCOME
ACCOUNTS PAYABLE – DECREASES CASH BUT DOES NOT CHANGE THE NET INCOME
UNEARNED INCOME – INCREASES REVENUE WHICH INCREASES NET INCOME BUT IS NOT A
CASH TRANSACTION
PARTS OF CASH FLOW STATEMENT
• 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.
PRACTICE

• 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
• COMPUTE FOR THE CASH GENERATED/USED IN FINANCING ACTIVITIES.
QUIZ 1
1. IDENTIFY WHICH OF THE FOLLOWING TRANSACTIONS FALL UNDER OPERATING, INVESTING AND FINANCING ACTIVITIES:
A. CASH RECEIVED FROM CUSTOMERS
B. CASH PAID TO SUPPLIERS
C. CASH PAID TO EMPLOYEES
D. CASH PAID TO PURCHASE EQUIPMENT (COMPANY DOES NOT SELL EQUIPMENT)
E. CASH RECEIVED FROM SALE OF FURNITURE (COMPANY’S MAIN LINE OF BUSINESS IS NOT RELATED TO FURNITURE)
F. DEPRECIATION EXPENSE
G. SALE OF GOODS ON CREDIT
H. PURCHASE OF GOODS ON CREDIT
I. CASH RECEIVED FROM GETTING A LOAN FROM A BANK
J. CASH PAID TO OWNERS
QUIZ 2

JUANA’S SARI-SARI STORE HAD THE FOLLOWING TRANSACTIONS DURING THE YEAR:
A. PURCHASE OF GOODS. PAID CASH. 100,000
B. SALE OF GOODS. RECEIVED CASH. 150,000
C. PAID UTILITIES 30,000
D. PAID RENT 10,000
E. SOLD EQUIPMENT FOR CASH 100,000
F. OWNER WITHDRAWS INVESTMENT 10,000
COMPUTE FOR THE NET CASH FLOW GENERATED BY/USED IN OPERATING ACTIVITIES
QUIZ 3
JUANA’S SARI-SARI STORE HAD THE FOLLOWING TRANSACTIONS DURING THE YEAR:
A. PURCHASE OF GOODS. PAID CASH. 100,000
B. SALE OF GOODS. RECEIVED CASH. 150,000
C. PAID UTILITIES 30,000
D. PAID RENT 10,000
E. SOLD EQUIPMENT FOR CASH 100,000
F. OWNER WITHDRAWS INVESTMENT 10,000
USING THE GIVEN ABOVE, PREPARE A CASH FLOW STATEMENT.