3 CFS

CASH FLOW
STATEMENT
01
INTRODUCTION:
STATEMENT OF
CASH FLOW
INTRODUCTION: CASH FLOW
STATEMENT
Balance sheets for two periods show whether
cash increased or decreased. For example, Takumi
comparative balance sheet reported the following:
STATEMENT
The statement of cash flows reports cash flows
– cash receipts and cash payment. It
 shows where cash came from and how cash was
spent
 reports why cash increased or decreased during
the period
 covers a span of time and is dated “Year Ended
December 31, 2018”
STATEMENT
The statement of cash flow helps users of accounting
information to…
1. predict future cash flows
2. evaluate management decisions
3. predict ability to pay debts and dividends
02
ELEMENTS OF
CASH FLOW
STATEMENT
ELEMENTS OF CASH FLOW STATEMENT
There are three basic types of cash-flow
activities or elements of cash flow statement:
1. Operating Activities
2. Investing Activities
3. Financing Activities
1. Operating Activities
• Create revenues, expenses, gains, and losses
• Affect net income on the income statement
• Affect current assets and current liabilities on the
balance sheet
2. Investing Activities
• Increase and decrease long-term assets, such as
computers, software, land, buildings, and
equipment
• Include purchases and sales of these assets, plus
loans to others and collections of loans
3. Financing Activities
• Increase and decrease long-term liabilities and
owner’s equity
• Include borrowing money and paying off loans
03
APPLICATION OF
THE CONCEPTS
OF CASH FLOW
ACTIVITIES
APPLICATION OF CONCEPT ON OPERATING,
FINANCING, AND INVESTING ACTIVITIES
Assume the following transactions of Kira’s
Automotive Service, a sole proprietorship business,
for the month of June 2018.
Transaction 1. Kira started his car servicing business
by putting in ₱200 000.00 as his initial capital.
Transaction 2. The business availed from a bank loan
amounting to ₱100 000.00, payable in three months,
to support its working capital requirement.
Transaction 3. A shop equipment was purchased by
the business for ₱80 000.00 with 30% down payment
and the balance payable in two months after the
invoice date.
Transaction 4. The business paid ₱1,000.00 for the
monthly water bill.
Transaction 5. Payroll for the month amounted to a
gross amount of ₱50,000.00. Net payroll was
₱37,500.00, net of SSS employees' share of
₱5,500.00, and withholding income tax of ₱7,000.00.
Transaction 6. The business paid ₱50,000.00 for
supplies used.
Transaction 7. The business billed and collected
₱60,000.00 services rendered to customers.
Transaction 8. The business paid ₱50,000.00 of its
loan to the bank and additional ₱3,000.00 interest
expense.
04
FORMATS FOR
OPERATING
ACTIVITIES
FORMATS FOR OPERATING ACTIVITIES
There are two ways to format operating
activities on the statement of cash flows:
1. Indirect Method, which reconciles from net
income to net cash provided by operating activities.
2. Direct Method, which reports all the cash receipts
and all the cash payments from operating activities.
FORMATS FOR OPERATING ACTIVITIES
05
PREPARING THE
STATEMENT OF
CASH FLOW BY
INDIRECT
METHOD
PREPARING CASH FLOW STATEMENT
BY INDIRECT METHOD
Step 1: Lay out the statement format. Step 2 to 4 will
complete the statement of cash flows.
BY INDIRECT METHOD
Step 2: Compute the change in cash from the
comparative balance sheet. The change in cash is the
“check figure” for the statement of cash flows. he
comparative balance sheet of Takumi Company,
where the top line shows that cash decreased by
₱200,000 during 2018.
BY INDIRECT METHOD
Step 3: Take net income, depreciation, and any gains
or losses from the income statement.
BY INDIRECT METHOD
Step 4: Complete the statement of cash flows, using
data from the income statement and the balance
sheet. The statement is complete only after you have
explained all the year-to-year changes in all the
accounts on the balance sheet.
06
CASH FLOWS
FROM
OPERATING
ACTIVITES
CASH FLOW FROM OPERATING ACTIVITIES
A. Net Income
The statement of cash flows – indirect method –
begins with net income because revenues and
expenses. Revenues bring in cash receipts and
expenses must be paid. But the cash flows don’t
always equal the revenues and expenses.
B. Depreciation
This expense added back to net income to reconcile
from net income to cash flow operations. Depreciation
is recorded as follows:
C. Gains and Losses on the Sale of Assets
Sales of long-term assets such as land and buildings
are investing activities, and these sales usually create
a gain or loss. The gain or loss is included in net
income, which is part of the operations.
D. Changes in the Current Assets and the Current
Liabilities
Most current assets and current liabilities result from
operating activities. Changes in the current accounts
create adjustments to net income on the cash-flow
statement
07
EVALUATING CASH
FLOWS FROM
OPERATING
ACTIVITIES
EVALUATING CASH FLOWS FROM
OPERATING ACTIVITIES
Takumi Company’s operation provided net cash flow
of ₱700,000. This amount exceeds net income,
however, to fully evaluate a company’s cash flows, we
must also examine Takumi’s investing and financing
activities.
08
CASH FLOWS
FROM INVESTING
ACTIVITIES
CASH FLOW FROM INVESTING ACTIVITIES
A. Computing Acquisitions and Sales of Plant
Assets
Companies keep separate account for each asset. But
for computing investing cash flows, it is helpful to
combine all the plant assets into a single Plant Assets
account. And we subtract accumulated depreciation
from the asset’s cost in order to work with a single net
figure for plant assets
09
CASH FLOW
FROM
FINANCING
ACTIVITIES
CASH FLOW FROM FINANCING ACTIVITIES
A. Computing Issuances and Payments of Long-
Term Notes Payable
The beginning and ending balances of Notes
Payable or Bonds Payable are taken from the
balance sheet. If either the amount of new issuances
or payment is known, the other amount can be
computed.
THANK YOU!
ACTIVITY ON
CASH
FLOW STATEMENT
ACTIVITY: CASH FLOW STATEMENT
Assume that XYZ Company is considering buying
ABC Company. ABC Company reported the following
comparative balance sheet and income statement.
Compute the following cash flow amounts and
prepare the statement of cash flows (indirect method)
for the year ended December 31, 2019.
ACTIVITY: CASH FLOW STATEMENT
Transaction Data:
• Acquisition of equipment. ABC Company sold
equipment that had book value of $15,000.
• Cash withdrawal by proprietor. ABC Company
withdrew $21,000
• Payment of long-term note payable. ABC
Company paid off $10,000 of long-term notes
payable.
BY INDIRECT METHOD
Step 1: Lay out the statement format. Step 2 to 4 will
complete the statement of cash flows.
BY INDIRECT METHOD
Step 2: Compute the change in cash from the
comparative balance sheet. The change in cash is the
“check figure” for the statement of cash flows.
BY INDIRECT METHOD
Step 3: Take net income, depreciation, and any gains
or losses from the income statement.
BY INDIRECT METHOD
Step 4: Complete the statement of cash flows, using
data from the income statement and the balance
sheet.
THANK YOU!

3 CFS

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CASH FLOW

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