Module 04 (Q1-Week 5): Cash Flow Statement (CFS)

I. LEARNING COMPETENCIES
1. Discuss the components and structures of a CFS.
2. Prepare a CFS.
3. Reflect on the importance of preparing the CFS.

II. LESSON PRESENTATION

Review
Give specific account titles for each of the terms below:
1. Accrual

2. Depreciation

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.
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.
Below is an example of a CFS:

Image 4.1. Sample Statement of Cash Flow (Source: DepEd FABM 2 Teaching Guide)

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a. 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

Image 4.2. Accounts Receivable T-Account (Source: DepEd FABM 2 Teaching Guide)
b. 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

Image 4.3. Accounts Payable T-Account (Source: DepEd FABM 2 Teaching Guide)

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).
The two approaches will yield the same amount of cash flow from operating activities.
Furthermore, Investing and Financing sections of the CFS are the same under the two
approaches. In this course, however, we will focus on the Direct Approach.

Parts of the Statement of Cash Flow

a. Heading
i. Name of the Company
ii. Name of the Statement
iii. Date of preparation
To Note: The use of “for the” means that amounts in the SCE are changes during the period. This means that
what happened in the previous years are not included in the Statement.
b. Sections of the Direct Method
i. First part is operating activities
ii. Second part is investing activities

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iii. Third part is financing activities

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.

Image 4.4. Parts of the Statement of Cash Flow (Source: DepEd FABM 2 Teaching Guide)

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III. SUMMARY OF LESSON
 Cash Flow Statement is a financial statement that provides an analysis of inflows and/or
outflows of cash from/to operating, investing and financing activities.
 The CFS provides the net change in the cash balance of a company for a period.
 The two approaches of CFS are direct approach and indirect approach.
 The direct method would show each major class of gross cash receipts and gross cash
payments.
 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.

IV. PRACTICE
A. Theory
Direction: Answer the following questions. Answer on a separate sheet. (2 pts. each)
1. Changes in long term liabilities is part of what activity in the CFS?
2. Net income is part of which Approach in preparing the CFS?

B. Problem Solving
Direction: Solve the following problems. Show your solutions. Answer on a separate sheet. (5
pts. each)
1. 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.
2. Based on the given above, compute for the net change in cash for the year.

C. Preparation of Cash Flow Statement

Direction: Prepare the Cash Flow Statement. Answer on a separate sheet. (10 pts.)
If ending balance of cash account of the problem above is P700,000, prepare the CFS for the
year.

V. ENRICHMENT
Direction: Answer the following questions in 3-5 sentences. Answer on a separate sheet. (5 pts.
each; Correctness of Ideas - 3, Organization of Ideas - 2)
1. How can a company still have a high level of cash balance even with a net loss?
2. How important is it for you to keep track of the cash flow of your allowance?

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VI. EVALUATION
A. Theory
Direction: Identify which of the following transactions fall under operating, investing and financing
activities. Answer on a separate sheet. (2 pts. each)
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

B. Problem Solving
Direction: Solve the following problems. Show your solutions. Answer on a separate sheet. (5
pts. each)
1. 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
2. Using the given above, compute for the net cash flow generated by/used in investing
activities.
3. Using the given above, compute for the net cash flow generated by/used in financing
activities.
4. Using the given above, prepare a Cash Flow Statement.

C. Preparation of Cash Flow Statement

Direction: Prepare the Cash Flow Statement. Answer on a separate sheet. (10 pts.)
Using the same problem above, prepare a Cash Flow Statement.

VII. RESOURCES
DepEd FABM 1 and 2 Teaching Guide