Operating Activities (Direct Method)

receivable*/Advances from PPE (Building, Land, Equipment)

customers 3,620,000 4,300,000
210,000 370000 870,000 190,000
4450000 20,000
4,270,000 Cash received from customers

Accounts payable/Notes
payable*/Advances to suppliers
400000 345,000
Cash paid to supp 2,575,000 2,630,000

Prepaid Expenses/Accrued
Expenses
90,000 40000
75000 80,000
Cash paid for ope 1,085,000 1130000

Income tax payable

35,000 15,000
Income tax paym 180,000 200,000

Operating Activities
Cash received from customers 4,270,000
Cash payments to suppliers -2,575,000
Cash payments for operating expenses -1,085,000
Payments on account of taxes -180,000
Net cash provided by operating activities 430,000

Investing Activities
Proceeds from the sale of equipment 110,000
Payment for the acquisition of new equipmen -870,000
Net cash used in investing activities -760,000

Financing Activities
Cash dividends paid -160,000
Proceeds from the issuance of bonds payable 600,000
Payments for the purchase of treasury shares -140,000
Net cash provided by financing activities 300000

Beg cash 150,000

Net cash provided by operating activities 430,000
Net cash used in investing activities -760,000
Net cash provided by financing activities 300000
End cash 120,000

Operating Activities (Indirect Method)

Net income after tax 500,000 Net income after tax
Less: Gain on sale -60,000 Less: Gain on sale
Add: Depreciation 260,000 Add: Depreciation
Less: Increase in AR -160000 Less: Increase in AR
Less: Increase in inventory -230000 Less: Increase in inventory
Add: Decrease in prepaid insurance 10,000 Add: Decrease in prepaid insu
Add: Increase in AP 55000 Add: Increase in AP
Add: Increase in Salaries payable 30000 Add: Increase in Salaries paya
Add: Increase in ITP 20,000 Add: Increase in AIP
Add: Increase in AIP 5,000 Net cash provided by operatio
Net cash provided by operating activities 430,000 Less: Income tax payments
Net cash provided by operati
income after tax 700,000
: Gain on sale -60,000
: Depreciation 260,000
: Increase in AR -160000
: Increase in inventory -230000
: Decrease in prepaid insurance 10,000
: Increase in AP 55000
: Increase in Salaries payable 30000
: Increase in AIP 5,000
cash provided by operations 610,000
: Income tax payments -180,000
cash provided by operating activities
430,000
 Operating Activities (Direct Method) Investing Activities
receivable*/Advances from
customers PPE (Building, Land, Equipment)
210,000 370000 3620000
4,450,000 20,000 Purchase price of 870000
4,270,000 Cash received from customers

Accounts payable/Notes
payable*/Advances to suppliers
400000 345,000
Cash payme 2,575,000 2,630,000
Prepaid Expenses/Accrued
Expenses
90,000 40000
75000 80,000
Cash payme 1,085,000 1130000

Income tax payable

35000 15,000
Payments o 180,000 200,000

Operating Activities
Cash received from customers 4,270,000
Cash payments to suppliers -2,575,000
Cash payments for operating expenses -1,085,000
Payments on account of taxes -180,000
Net cash provided by operating activities 430,000

Investing Activities
Cash received from the sale of PPE 110000
Purchase price of PPE -870000
Net cash used in investing activities -760000

Financing Activities
Cash dividends paid -160,000
Proceeds from the issuance of bonds 600,000
Purchase price of treasury shares -140,000
Net cash provided by the financing actvities 300,000

Net decrease in cash balance -30,000

Beg cash 150,000
End cash 120,000
Operating Cash Flows (Indirect)
Net Income after tax
Less: Gain on sale of equipment
Add: Depreciation
Less: Increase in AR
Less: Increase in Inventory
Add: Decrease in prepaid insuran
Add: Increase in AP
Add: Increase in Salaries Payable
Add: Increase in ITP
Add: Increase in AIP
Net cash provided by operating ac
Operating Cash Flows (Indirect)
500,000 Net Income before tax
-60,000 Less: Gain on sale of equipment
260,000 Add: Depreciation
-160000 Less: Increase in AR
-230000 Less: Increase in Inventory
10,000 Add: Decrease in prepaid insurance
55000 Add: Increase in AP
30,000 Add: Increase in Salaries Payable
20,000 Add: Increase in AIP
5,000 Net cash provided by operations
430,000 Less: Cash paid for taxes
Net cash provided by operating activit
Building, Land, Equipment)
4300000
190,000
ng Cash Flows (Indirect)
me before tax 700,000
in on sale of equipment -60,000
260,000
rease in AR -160000
rease in Inventory -230000
crease in prepaid insurance 10,000
55000
rease in Salaries Payable 30,000
rease in AIP 5,000
h provided by operations 610,000
sh paid for taxes -180,000
h provided by operating activit 430,000
Operating Activities (Direct Method)

Accounts receivable PPE (Building, Land, Equipment)

210,000 370,000 3,620,000 4,300,000
4,450,000 20,000 870,000 190,000
4,270,000 Cash received from customers (squeeze)

Accounts payable
400,000 345,000
Cash paid to supp 2,575,000 2,630,000

Prepaid Expenses/Accrued
Expenses
90,000 40000
75000 80,000
Cash payments fo 1,085,000 1130000

Income tax payable

35,000 15,000
Payments of inco 180,000 200,000

Operating Activities
Cash received from customers 4,270,000
Cash payments to suppliers -2,575,000
Cash payments for operating expenses -1,085,000
Payments on account of taxes -180,000
Net cash provided by operating activities 430,000

INvesting Activities
Cash received from the sale of equipment 110,000
Cash payment for the new equipment -870,000
Net cash used in investing activities -760,000

Financing Activities
Cash dividends paid -160,000
Proceeds from bond issuance 600,000
Payments for the purchase of treasury shares -140,000
Net cash provided by financing activities 300,000

Beg cash 150,000

Net cash provided by operating activities 430000
Net cash used in investing activities -760,000
Net cash provided by financing activities 300,000
End cash 120,000

Operating Activities (Indirect Method)

Net income after tax 500,000 Net income before tax
Less: gain on sale of equiment -60,000 Less: gain on sale of equiment
Add: depreication 260,000 Add: depreication
Less: Increase in AR -160000 Less: Increase in AR
Less: Increase in inventory -230000 Less: Increase in inventory
Add: Decrease in prepaid insuranc 10,000 Add: Decrease in prepaid insuran
Add: increase in AP 55000 Add: increase in AP
Add: increase in salaries payable 30,000 Add: increase in salaries payable
Add: increase in ITP 20,000 Add: increase in AIP
Add: increase in AIP 5,000 Net cash provided by operations
Net cash provided by operating activities
430,000 Less: Income tax paid
Net cash provided by operating activities
 700,000
-60,000
260,000
-160000
-230000
10,000
55000
30,000
5,000
610,000
-180,000
430,000
Indirect Method of Computing Cash Flows from Operating Activities
-simpler way of computing the operating cash flows
-in practice, it is followed by virtually every entity

Needed information:
1. beginning and ending balances of current assets and current liabilities.
2. income statement during the period

Net income (in practice, before income tax) Pxx

Add: Losses and expenses recognized not involving operating activities
Loss on sale of PPE xx
Loss on sale and Unrealized losses from FVTOCI or AC investmxx
Depreciation and amortization xx
Impairment Losses xx
Investment in FVTOCI/AC amortization of premium xx
Bond payable amortization of discount xx
Share in net loss of associate xx

Less: Gains and income recognized not involving operating activities

Gain on sale of PPE xx
Gain on sale and Unrealized gains from FVTOCI or AC investmexx
Gain on reversal of impairment Losses xx
Investment in FVTOCI/AC amortization of discount xx
Bond payable amortization of premium xx

Changes in working capital accounts:

Add: Decreases in the carrying amounts noncash trade asset accounts
xx (AR
Assets
(net of allowance)/NR/Inventory (net of writ
Increases in trade payable accounts (AP/NP/Accrued expenses)
xx Liab

Less: Increases in the carrying amounts noncash trade asset accounts

xx (AR (net of allowance)/NR/Inventory (net of write
Decreases in trade payable accounts (AP/NP/Accrued expenses)
xx
Operating Cash Flows - Indirect Method Pxx

Cash received from customers Pxx

Less: Cash paid to suppliers xx
Cash paid to operating expenses xx
Operating Cash Flows - Direct Method Pxx

Operating Cash Flows - Indirect Method = Operating Cash Flows - Direct Method
Net Sales Pxx
Less: COGS (xx)
Gross Profit Pxx
Less: Operating Expenses (xx)
Operating Income Pxx
Add: Other Income xx
Less: Other Losses/Expens (xx)
Net Income Pxx

AR, beg 1,200,000

AR, end 1,500,000 300,000
Net sales 5,000,000

AR
1,200,000 1,500,000
Net sales 5,000,000 4,700,000 cash received

Accrued expenses, beg 900,000

Accrued expenses, end 750,000 -150,000
Operating expenses (exclu 2,400,000
Expense
Accrued Expenses
750,000 900,000
Cash paid 2,550,000 2,400,000 Operating expenses
Classification of Cash Flows

Entity that is not a financial institution

Assets Liabilities
Cash flows arising from Current Noncurrent Current
Operating Investing Operating
Classification of Cash Flows
Currently maturing
Research and Currently maturing
loans
development costs loans/bonds/mortgag
Exceptions receivable/investme
charged to PL - e/lease liability -
nts (except FVTPL) -
operating financing
investing

Entity is a financial institution - cash flows from loans receivables are considered within operating activities.

Operating activities - direct method or indirect method

Investing activities - direct method only
Financing activities - direct method only

Direct method - gross amounts of cash inflows and outflows are presented
Cash received from customers Pxx
Cash paid to suppliers (xx)
Cash paid related to operating (xx)

Indirect method (operating activities) - starting point: net income before tax
Adjusted by: PL amounts not related to operating activities (gain or loss on sale of noncurrent assets, amortizatio
Adjusted by changes in the balances of working capital accounts

Direct Method
1. beginning and ending balances of current assets and current liabilities.
2. income statement during the period

Computation of cash received from customers:

Accounts receivable/Notes
receivable*/Advances from customers
Beg AR Beg Advances
Beg NR End AR
End Advances End NR
Gross sales (including Cash received from customers (squeeze)
Recovery of AR Sales discount
Sales returns (excluding refunded returns)
Sales allowance (excluding refunded returns)
Accounts written-off
Recovery AR
 *coming from sale of goods or services (excluding amounts lent to other entities

Computation of cash paid to suppliers:

Inventory (assuming perpetual)

Beg Invty End Invty
Gross Purchases Cost of Goods Sold
Purchase discount
Purchase return Including refunded
Purchase allowance amounts

Accounts payable/Notes
payable*/Advances to suppliers
Beg Advances Beg AP
End AP Beg NP
End NP End Advances
Purchase discount Gross purchases
Purchase return
Excluding refunded amounts
Purchase allowance
Cash paid to suppliers

*coming from purchase of goods or services (excluding amounts borrowed from

Cash paid to operating expenses

Prepaid Expenses/Accrued Expenses

Beg. P.E. Beg. A.E.
End. A.E. End. P.E.
Cash paid for operati Operating Expenses*

*less noncash expenses such as depreciation and amortization

Cash paid or received from buying or selling FVTPL Securities

 Investment in FVTPL
Beg. Bal End. Bal
Purchase price of addCarrying amount of sold investment
Unrealized Gain Unrealized Loss

*also applicable to FVTOCI Investment

Cash paid or received from buying or selling Amortized Cost Securities

Investment in AC
Beg. Bal End. Bal
Purchase price of addCarrying amount of sold investment
Discount AmortizationPremium Amortization

Cash paid or cash received from buying or selling PPE

PPE (Building, Land, Equipment)

Beg. Bal End. Bal
Purchase price of acquired
Cost of sold PPE

Accumulated Depreciation
End. Bal Beg. Bal
Accum Depre related tDepreciation

PPE (Building, Land, Equipment), net of

Accumulated Depreciation*
Beg. Bal End. Bal
Purchase price of acquired
Carrying amout of sold PPE
Depreciation

*Intangible Assets

Cash payment to borrowings or Cash received from borrowings (assuming no premiums or discount; all transacti
Bonds Payable/Loans Payable/Mortgage
Payable
End. Bal Beg. Bal
 Cash payments to borAmount of borrowing (cash received from borrowings)

Cash payment to borrowings or Cash received from borrowings (with resulting premium or discount)
Bonds Payable/Loans Payable/Mortgage
Payable
End. Bal Beg. Bal
*face amount Cash payments to borFace amount of borrowing

Cash Received from issuance of shares

Share Capital/Share Premium

End. Bal Beg. Bal
Issuance of shares
Share dividends distributed

Cash Paid or Received from Treasury Shares

Treasury Shares
Beg. Bal End. Bal
Purchase price of Tre Cost of sold treasury shares

Retained Earnings
Retained Earnings (total)
End. Bal Beg. Bal
Loss Profit
Dividends:
Cash dividends
Property dividends
Share dividends

*dividends are assumed to be cash dividends unless otherwise stated

Cash dividends payable

End. Bal Beg. Bal
Payment of cash divi Cash dividends declared

*if no cash dividends payable, the amount of declared cash dividen

 Liabilities Equity
Noncurrent
Financing Financing

Profit or loss and other

comprehensive income

Default Alternative
Interest received/ dividends receiv Operating Investing
Dividends paid Financing Operating
Interest paid Operating Financing

current assets, amortization of premium or discount,)

Cash
AR

Cash
Advances
ded returns)

Cash
SD
AR
unts lent to other entities)

Advances to suppliers
Cash

Purchases
AP

AP
PD
Cash
amounts borrowed from other entities)

Expense xx
Accrued Expense xx

Expense xx
Prepaid Expense xx

Prepaid Expensexx
Cash xx

Accrued Expens xx
Cash xx
 Carrying amount of sold investment Pxx
Add: Realized Gain on Sale; or xx
Less: Realized Loss on Sale (xx)
Cash received from selling FVTPL Investment Pxx

Carrying amount of sold investment Pxx

Add: Realized Gain on Sale; or xx
Less: Realized Loss on Sale (xx)
Cash received from selling AC Investment Pxx

Purchase price of acquired Pxx

Less: Non-cash component (liability assumed, exchan (xx) Gain on sale: Proceeds > Carrying amount
Cash paid for the acquired PPE Pxx Loss on sale: Proceeds < Carrying amount

Cost of sold PPE Pxx

Less:Accum Depre related to sold PPE (xx)
Updated carrying amount of sold PPE Pxx Depre. Expxx
Add: Gain on Sale; or xx Accum Depre xx
Less: Loss on Sale (xx)
Cash received from selling PPE Pxx
Accm Depre
Loss on sale (if loss)
PPE (cost)

Cash
Gain on Sale (if gain)

s or discount; all transactions are assumed to be based on face amount)

Increase in Loan Payable

eived from borrowings) -assumed cash received from borrowings

Decrease in Loan Payable

-assumed cash payment to borrowings

m or discount)

Face amount of borrowing Pxx

Add: Premium; or xx
Less: Discount (xx)
Amount received from borrowing Pxx

Issuance of shares xx
Less: Noncash components (PPE, legal services, payme (xx)
Cash received from issuance shares Pxx

Increase in share capital and share premium

-assumed cash received from issuance of shares

Cost of sold treasury shares Pxx

Add: amounts recognized in share premium treasury xx
Less: amounts charged against share premium - trea (xx)
Cash received from reissuing treasury shares Pxx

Profit = Income Summary has credit bal.

Income Summary
Retained Earnings

herwise stated

Retained Earnings
 Cash dividends payable

Cash dividends payable

Cash
ds > Carrying amount
ds < Carrying amount
Operating Cash Flows (Direct Method)

Accounts receivable PPE (Building, Land, Equipment)

210,000 370,000 3,620,000 4,300,000
4,450,000 20,000 870,000 190,000
4,270,000 Cash received from customers (squeeze)

Accounts payable
400,000 345,000
Cash paid to supp 2,575,000 2,630,000

Prepaid Expenses/Accrued
Expenses
90,000 40000
75000 80,000
Cash paid for ope 1,085,000 1130000

Income Tax Payable

35,000 15,000
Cash payment for 180,000 200,000

Operating Activities
Cash received from customers 4,270,000
Cash payments to suppliers -2,575,000
Cash payments for operating expenses -1,085,000
Payments on account of taxes -180,000
Net cash provided by operating activities 430,000

Investing Activities
Cash received from the sale of equipment 110,000
Payments for the purchase of equipment -870,000
Net cash used in investing activities -760,000

Financing Activities
Cash dividends paid -160,000
Proceeds from issuance of bonds 600,000
Payments to purchase treasury shares -140,000
Net cash provided by financing activities 300,000

Beg cash 150,000

Net cash provided by operating activities 430,000
Net cash used in investing activities -760,000
Net cash provided by financing activities 300,000
End cash 120,000

Operating Cash Flows (Indirect Method)

Net income after tax 500,000 Net income before tax
Less: Gain on sale of equipment -60,000 Less: Gain on sale of equipm
Add: Depreciation 260,000 Add: Depreciation
Less: Increase in AR, net -160000 Less: Increase in AR, net
Less: Increase in Inventory -230000 Less: Increase in Inventory
Add: Decrease in prepaid insurance 10,000 Add: Decrease in prepaid ins
Add: Increase in AP 55000 Add: Increase in AP
Add: Increase in Salaries Payable 30,000 Add: Increase in Salaries Pay
Add: Increase in ITP 20,000 Add: Increase in AIP
Add: Increase in AIP 5,000 Net cash provided by opera
Net cash provided by operating activities 430,000 Less: Income taxes paid
Net cash provided by opera
income before tax 700,000
: Gain on sale of equipment -60,000
: Depreciation 260,000
: Increase in AR, net -160000
: Increase in Inventory -230000
: Decrease in prepaid insurance 10,000
: Increase in AP 55000
: Increase in Salaries Payable 30,000
: Increase in AIP 5,000
cash provided by operations 610,000
: Income taxes paid -180,000
cash provided by operating activities430,000
Share capital 4,000,000
Share issuance 1000000
Conversion of bonds 250000
5,250,000

Share premium 1,750,000

Share issuance 500000
Conversion of bonds 250000
2,500,000
Share premium-treasury 200000
2,700,000
Numbers of shares
Share dividends
Issued shares for land

Land 200,000
Share capital
Share premium
 210000
21000
19,000
250000
1250000

95000
105,000