Sim Week 5

Republic of the Philippines
Department of Education
REGION V
SCHOOLS DIVISION OF MASBATE PROVINCE
CATAINGAN NATIONAL HIGH SCHOOL
SELF - INSTRUCTIONAL
MATERIAL (SIM) No.5
Learner's Information:
Name of Learner:
Grade 12- ABM
Grade Level: S.Y. 2020 - 2021
EDWIN P. ABAL
Name of Teacher: T-III
Learning Area: FUNDAMENTALS OF ACCOUNTING, BUSINESS AND

OBJECTIVES: MANAGEMENT 2
Address: Poblacion, Cataingan, Masbate

Telephone No.: (056) 578-3469
REGION V
Content – Cash Flow Statements (CFS)
Content Standard – The learners demonstrate an understanding of …. The

components and the sturcture of a Cash Flow Statement that will equip him/her in the
preparation of the said financial report.
Performance Standard – The learners shall be able to…. Solve exercises and problems that
require preparation of a Cash Flow Statement.
Learning Competencies :
The learners shall be able to… 1. ) Discuss the components and structures of cash flow
statements. Code : ABM_FABM12-If-10 2.) Prepare a Cash Flow Statement. Code:
ABM_FABM12-If-11
ILLUSTRATIVE CASE : UY LAW OFFICE

The bookkeeper of Uy Law Office prepared a worksheet that will make the preparation of
financial statements easier. The worksheet can be found below :
ILLUSTRATIVE CASE : UY LAW OFFICE
COD
E ACCOUNTS Unadjusted Adjustment Adjusted SCI SFP
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
588,50
1001 CASH 588,500 0 588,500
1002 ACCOUNTS RECEIVABLE 75,000 75,000 75,000
1003 OFFICE SUPPLIES 5,000 3,000 2,000 2,000
110,00
1004 PREPAID RENT 120,000 10,000 0 110,000
1005 OFFICE EQUIPMENT 36,000 36,000 36,000
1006 ACCUMULATED DEPRECIATION-
OFFICE EQUIPMENT 1,000 1,000 1,000
2001 ACCOUNTS PAYABLE 25,000 25,000 25,000
100,00 100,00
2002 NOTES PAYABLE-BANK 100,000 0 0
2003 UNEARNED REVENUES 35,000 35,000 35,000
2004 INTEREST PAYABLE 500 500 500
3001 JAN UY, CAPITAL 500,000 500,00 500,00

Telephone No.: (056) 578-3469
REGION V
0 0
3002 JAN UY, WITHDRAWAL 25,000 25,000 25,000
247,50
4001 PROFESSIONAL FEES 247,500 0 247,500
5001 SALARIES EXPENSE 15,000 15,000 15,000
5002 RENT EXPENSE 10,000 10,000 10,000
5003 UTILITIES EXPENSE 8,000 8,000 8,000
5004 REPRESENTATION EXPENSE 25,000 25,000 25,000
5005 OFFICE SUPPLIES EXPENSE 3,000 3,000 3,000
5006 DEPRECIATION EXPENSE 1,000 1,000 1,000
5007 INTEREST EXPENSE 500 500 500
5008 PERMIT AND LICENSES EXPENSE 10,000 10,000 10,000
909,00 909,00 661,50

TOTAL 907,500 907,500 14,500 14,500 0 0 72,500 247,500 836,500 0
175,00
NET INCOME 175,000 0
836,50
TOTAL 247,500 247,500 836,500 0
INTRODUCTION :
A Statement of Cash Flows generally presents the sources and utilization of an
organization’s cash and cah equivalents. Although the statement of cash flows is historical in
nature, the information contained in such statements is useful in predicting future cash
outflows and inflows of the organization.
This information will aid the organization in their financing decisions. For example,
businesses confronted with forecasted cash shortages may opt to borrow from the bank or
let owners infuse additional capital.
A statement of cash flows has three major sections: Operating, Financing, and Investing.
Each section represents the classification of the organizations cash related activities.
Figure 6.1: Three Major Sections of a Statement of Cash Flow

Telephone No.: (056) 578-3469
REGION V
INVESTING
OPERATING FINANCING
ORGANIZATION’S
CASH RELATED
ACTIVITIES
OPERATING ACTIVITIES
Operating activities are the baseline cash activities of the entity related to it’s normal
operation cycle. Furthermore, such activities are related to the primary revenue-producing
activity of the entity. Incidentally such transactions will be related to profit determination.
IAS, Statement of Cash Flows (IASB,2001), lists the following transactions that are examples
of operating activities.
Figure 6.2 – Examples of Operating Activities:
1. Cash receipts from sale of goods and rendering of services (+)
2. Cash receipts from royalties, fees, commission, and other revenue (+)
3. Cash payments to suppliers of goods and services (-)
4. Cash payments to employees (-)
5. Cash payments to income taxes (-)
6. Interest paid (-)
7. Interest received (+)
8. Dividends received (+)
The information presented above is useful for financial information users. Furthermore,
such information will indicate whether the loans and interest can be repaid, dividends can
be declared, and operations can be continued without resorting to external financing.
DIRECT versus INDIRECT Presentation :

Telephone No.: (056) 578-3469
REGION V
According to IAS 7 (IASB 2201), entities are given an option whether to present the
statement of cash flows using the direct or indirect method. The direct method presents
each major classification of gross receipts and gross payments for operating activities. This is
line with the items presented in Figure 6.2. IAS 7 (IASB, 2001) encourages the use of the
direct method. Below is an example of the stattement of cash flows using the DIRECT
METHOD:
MARGARET JANE TRADING

Statement of Cash Flows
For the Period Ended, December 31, 2015
CASH FLOW FROM OPERATING ACTIVITIES

Cash receipts from rendering of services 100,000
Cash payments to supplieers of goods and services ( 50,000)
Net Cash Flow from Operating Activities 50,000
CASH FLOW FROM INVESTING ACTIVITIES

Purchase of property, plant and equipment 100,000
Net Cash Flow from Investing Activities 100,000
CASH FLOW FROM FINANCING ACTIVITIES

Proceeds from cash investment of owners 230,000
Proceeds from bank loans 50,000
Payment to owners ( 10,000)
Net Cash Flow from Financing activities 270,000
NET INCREASE IN CASH 420,000
ADD : CASH AT THE BEGINNING OF THE PERIOD 250,000
CASH AT THE END OF THE PERIOD 670,000
=======

Telephone No.: (056) 578-3469
REGION V
The INDIRECT METHOD, however, presents the operating activities starting with the pre-tax
income. It then reconciles the pre-tax income for non-cash income and expenditures. After
which, the movements in current assets and liabilities are adjusted to the resulting figure.
Below is an example of a statement of cash flows presented using the indirect method:
MARGARET JANE TRADING

For the Period Ended December 31, 2015
Income before income tax 100,000
Adjustments for :
Depreciation 10,000
Amortization 20,000
Operating Income before working capital changes 130,000
Increase in Accounts Receivable ( 10,000)
Decrease in Inventories 15,000
Increase in Accounts Payable 10,000
Decrease in Notes Payable ( 12,000)
Net cash flow from Operating Activities 263,000
Purchase of Property, Plant and Equipment 100,000
Net cash flow from Investing Activities 100,000
Proceeds from cash investment of owners 1,000,000
Payment to Owners ( 200,000)
Net cash flows from Financing Activities 1,000,000
NET INCREASE IN CASH 1,363,000
CASH AT THE BEGINNING OF THE PERIOD 150,000
CASH AT THE END OF THE PERIOD 1,513,000
========

Telephone No.: (056) 578-3469
REGION V
For the purpose of this text, the direct method will be used since it is more preferred by IAS
7 (IASB 2001). Furtheremore, beginners in preparing the statement of cash flow will
appreciate the said format.
INVESTING ACTIVITIES
Investing activities gegerally result from acquisition and disposal of non-current assets. IAS 7
(IASB 2001) lists the following activities as investing activities:
1. Cash payments to acquire property, plant and equipment (-)
2. Cash payments to acquire intangible assets (-)
3. Cash receipts from sale of property, plant and equipment (+)
4. Cash receipts from sale of intangible assets (-)
5. Cash receipts from sale of long-term assets (+)
A business organization must report major classes of gross receipts and gross cash payments
for investing activities.
FINANCING ACTIVITIES
Financing activities usually arise from changes in non-current liabilities and owner’s
equity of a business organization. IAS 7 (IASB 2001) lists the following items as financing
activities:
1. Cash investments from owners (+)
2. Cash proceeds from bank loans (+)
3. Cash distributions to owners (-)
4. Repayment of bank loans (-)
A business organization must report major classes of gross receipts and gross cash payments
for financing activities.
DECISION RULE IN DETERMINING CLASSIFICATION OF CASH TRANSACTIONS
To summarize, it is appropriate to say that items that will affect net income or profit or loss
will be classified as operating activities. Items affecting non-current assets, on the other
hand, will be classified as investing activities. Finally, items affecting non-current liabilitie
and equity will be classified as financing. Below is the :

Telephone No.: (056) 578-3469
REGION V
Summary of the decision rule
OPERATING ACTIVITIES - PROFIT OR LOSS

INVESTING ACTIVITIES – NON-CURRENT ASSETS
FINANCING ACTIVITIES – EQUITY AND NON-CURRENT LIABILITY
PREPARING THE STATEMENT OF CASH FLOWS
1. Determine the HEADING.
The Heading on the statement includes the Company Name, Title of the Statement,
and the Period Covered by the statement. Below is the heading of the statement of
cash flow for the illustrative case:
UY LAW OFFICE
2. Analyze the CASH TRANSACTIONS.
Below is the CASH T’account of Uy Law Office:
CASH – 1001
Dec. 1 500,000 Dec. 1 10,000
Dec. 1 100,000 Dec. 1 120,000
Dec. 8 37,500 Dec. 2 5,000
Dec. 15 135,000 Dec. 8 36,000
Dec. 22 35,000 Dec. 17 25,000
Dec. 31 23,000
----------- ------------
807,500 219,000
588,500
=======
Based on the descriptions of each transactions, they were analyzed in the succeeding tables:
DEBITS AMOUNT NATURE CLASSIFICATION REASON NOTATION

Dec-01 500,000 Cash Investment of Owner Financing Affects Equity A
Dec-01 100,000 Proceeds from Bank loans Financing Affects Non-Current Liability B

Telephone No.: (056) 578-3469
REGION V
Dec-08 37,500 Collection from customer Operating Affects Net Income C

Dec-15 135,000 Collection from customer Operating Affects Net Income D
Dec-22 35,000 Collection from customer Operating Affects Net Income E
CREDIT
S AMOUNT NATURE CLASSIFICATION REASON NOTATION
Payment of business
Dec-01 10,000 permit Operating Affects Net Income F
Dec-01 120,000 Payment for Annual rent Operating Affects Net Income G
Dec-02 5,000 Purchase of Office Supplies Operating Affects Net Income H
Dec-08 36,000 Purchase of Equipment Investing Affects Non-Current Assets I
Dec-17 25,000 Cash withdrawal of Owner Financing Affects Equity J
Dec-31 23,000 Payment of Salaries Operating Affects Net Income K
3. Prepare the Operating Activities Section

Based on the analysis above, one can deterine that items C,D,E,F,G,H and K are
operating activities. All cash receipts from customers are grouped accordingly (C,D,
and E). Consequently, all cash payments to suppliers are also grouped (F,G, H, and K).
Below is the completed operating activities section of Uy Law Office:
Cash receipts from rendering of service 207,500 C,D,E
Cash payments to suppliers of goods and services (158,000) F,G,H,K
Net Cash Flow from Operating Activities 49,500
========
4. Prepare the Investing Activities Section
Based on the analysis, it was determined that item I is the only investing activity. This
pertains to the purchase of office equipment. Below is the completed investing
section of Uy Law Office:
Purchase of Property, Plant and Equipment ( 36,000) I
5. Prepare the Financing Activities Section
Based on the analysis above, it was determined that items A, B, and J are financing
activities. These pertains to the owner’s investment, bank loan proceeds, and owner
withdrawal, respectively. Below is the financing activities section of Uy Law Office:

Telephone No.: (056) 578-3469
REGION V

Proceeds from cash investment of owner’s 500,000 A
Proceeds from Bank loan 100,000 B
Payment to Owner’s (withdrawal) 25,000 J
Net Cash Flow from Financing Activities 575,000
=======
6. Determine the Ending Cash Balance.
After determining the net effects of the operating, investing and financing activities,
they are now aggregated. Below is the line item for the total effects of cash
transactions for the year:

Cash receipts from rendering of services 207,500 C, D, E
Cash payments to suppliers of goods and services (158,000)
F,G,H,K
Purchase of property, plant and equipment ( 36,000) I
Proceeds from cash investment of Owner’s 500,000 A
Proceeds from bank loan 100,000 B
Payment to Owner’s ( 25,000) J
Net cash flow from Financing Activities 575,000
=======
The beginning balance of cash is added to the item above (net increase in cash) to
arrive at the ending balance. Since this is the first year of operations for Uy Law
Office, there is no beginning bablance for the cash account, as shown below:
ADD: CASH BALANCE AT THE BEGINNING OF THE PERIOD -
_______

Telephone No.: (056) 578-3469
REGION V
=======

Telephone No.: (056) 578-3469
REGION V
Below is the completed Statement of Cash Flows for Uy Law Office :
UY LAW OFFICE

Cash receipts from rendering of services 207,500
Cash payments to suppliers of goods and services (158,000)
Purchase of property, plant and equipment ( 36,000)
Proceeds from cash investment of Owner’s 500,000
Proceeds from bank loan 100,000
Payment to Owner’s ( 25,000)
Net cash flow from Financing Activities 575,000
ADD: CASH AT THE BEGINNING OF THE PERIOD -
_______
=======
Notice that the line item “cash at the end of the period” should tie out with the
cash presented at the statement of financial position.

Telephone No.: (056) 578-3469
REGION V
EXERCISES :
1. Classification of Concepts. Determine each transaction whether they are
operating, financing, or investing. After which, indicate the reason for such
classification and indicate the effect of the transactions to cash flows.
Transactions Activity Reason Effect
Payment to supplier of goods. Operating Affects profit or Decreases
loss Cash
Payment to supplier of
services.
Receipts from goods sold.
Receipts from services
rendered.
Payment to employees.
Purchase of equipments.
Purchase of fixtures.
Purchase of patents.
Purchase of copyrights.
Purchase of trademarks.
Payment of interests.
Proceeds from interests.
Payment to owners.
Receipts from owners.
Payment of income taxes.
Proceeds from Longterm
debt.
Payment of Longterm debt.
Proceeds from sale of vehicle.
Proceeds from sale of
patents.
copyrights.
trademarks.

Telephone No.: (056) 578-3469
REGION V
2. Case A - ALGERIA COMPANY.

Below are the cash transactions of Algeria Company for December 31, 2015:
Cash payment to suppliers of goods and services (25,000)
Cash receipts from rendering services 50,000
Payment for acquisition of equipment 100,000
Cash at the beginning of the year 1,000,000
INSTRUCTIONS: Prepare the statement of cash flows using the indirect method.
After which, answer the following questions:
1. How much is the cash flow from operating activities?
2. How much is the cash flow from investing activities?
3. How much is the cash flow from financing activities?
4. How much is the net increase or decrease in cash for the year?
5. How much is the cash as of December 31, 2015?
3. Case B. BARBADOS COMPANY.
Below are the cash transactions of Barbados Company for December 31, 2015:
Cash at the beginning of the year 300,000

Telephone No.: (056) 578-3469
REGION V

4. Case C : MANCHESTER TRADING.
Below are the cash transactions of Manchester Company for December 31,
2015:
Payments for income taxes (30,000)
Payments for interest (31,250)
Proceeds for dividends of investment 37,500
Payment for acquisition of patents (300,000)
Proceeds from sale of equipment 37,500
Payment of bank loans 12,500
5. Case D : OREGON TRADING.

Below are the cash transactions of Manchester Company for December 31,
2015:

Telephone No.: (056) 578-3469
REGION V

Payments for income taxes (33,600)
Payments for interest (35,000)
Proceeds for dividends of investment 42,000
Payment for acquisition of patents (336,000)
Proceeds from sale of equipment 42,000
Payment of bank loans 14,000
QUESTIONS :
1. Define CASH.
2. Discuss Operating activities. Give examples.
3. Discuss Financing activities. Give examples.
4. Discuss Investing activiites. Give examples.
5. Identify the key elements of a statement of cash flows.
ENRICHMENT ACTIVITY :
1. Discuss the Procedures in constructing a Statement of Cash Flows.
2. Indicate whether each of the following items would be classified as (1.) an Operating
activities, an Investing activities, or a Financing activities or (2.) as a Non-cash

Telephone No.: (056) 578-3469
REGION V
transactions or non-cash items. Use (+) if the item represents a cash inflow and (-) if
the item represents cash outflow.
a.) Cash collected from customers.
b.) Cash paid to suppliers for inventory.
c.) Cash received for interest on a non-trade note receivable.
d.) Cash received from additional investment of the owner.
e.) Cash paid withdrawals of the owner.
f.) Cash received from bank loan.
g.) Cash paid for interest on loan.
h.) Cash paid to retire long-term loan.
i.) Cash paid for property taxes.
j.) Cash received for dividend revenues.
k.) Cash paid for wages.
l.) Cash paid for insurance.
m.) Depreciation expense for the year.
n.) Cash paid for purchase machinery.
o.) Cash received from the sale of land.
Instruction : Use this given format of answer sheet. See Sample.

NON-CASH
ITEMS OPERATING FINANCING INVESTING TRANSACTION/ITEM
a.) Cash
collected
from +
customers.
Prepared by :
Mr. Edwin P. Abal, T-III

Subject Teacher

Telephone No.: (056) 578-3469

Sim Week 5

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Republic of the Philippines

Learning Area: FUNDAMENTALS OF ACCOUNTING, BUSINESS AND

Address: Poblacion, Cataingan, Masbate

Content – Cash Flow Statements (CFS)

Content Standard – The learners demonstrate an understanding of …. The

ILLUSTRATIVE CASE : UY LAW OFFICE

Address: Poblacion, Cataingan, Masbate

909,00 909,00 661,50

Address: Poblacion, Cataingan, Masbate

DIRECT versus INDIRECT Presentation :

Address: Poblacion, Cataingan, Masbate

MARGARET JANE TRADING

CASH FLOW FROM OPERATING ACTIVITIES

CASH FLOW FROM INVESTING ACTIVITIES

CASH FLOW FROM FINANCING ACTIVITIES

Address: Poblacion, Cataingan, Masbate

MARGARET JANE TRADING

Address: Poblacion, Cataingan, Masbate

Address: Poblacion, Cataingan, Masbate

Summary of the decision rule

OPERATING ACTIVITIES - PROFIT OR LOSS

DEBITS AMOUNT NATURE CLASSIFICATION REASON NOTATION

Address: Poblacion, Cataingan, Masbate

Dec-08 37,500 Collection from customer Operating Affects Net Income C

3. Prepare the Operating Activities Section

Address: Poblacion, Cataingan, Masbate

CASH FLOW FROM FINANCING ACTIVITIES

CASH FLOW FROM OPERATING ACTIVITIES

Address: Poblacion, Cataingan, Masbate

Address: Poblacion, Cataingan, Masbate

Below is the completed Statement of Cash Flows for Uy Law Office :

CASH FLOW FROM OPERATING ACTIVITIES

Address: Poblacion, Cataingan, Masbate

Address: Poblacion, Cataingan, Masbate

2. Case A - ALGERIA COMPANY.

Address: Poblacion, Cataingan, Masbate

5. How much is the cash as of December 31, 2015?

5. Case D : OREGON TRADING.

Address: Poblacion, Cataingan, Masbate

Proceeds from cash investment of owners 322,000

1. Discuss the Procedures in constructing a Statement of Cash Flows.

Address: Poblacion, Cataingan, Masbate

Instruction : Use this given format of answer sheet. See Sample.

Mr. Edwin P. Abal, T-III

Address: Poblacion, Cataingan, Masbate

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