Cash Flow Statement

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.