Fundamentals of

Accountancy, Business
& Management 2
SLA No. 4 Statement of Cash Flows
At the end of the topic, students should be able to:

1. Solve exercises and problems that require preparation of

statement of cash flows
At the end of this topic, students should be able to:

1. Discuss the components and structures of a CFS

2. Prepare a CFS
What is a STATEMENT
OF CASH FLOWS?
- a statement that presents the inflows and outflows of cash
and cash equivalents

- Cash Flows are classified and presented into:

1. operating activities (either using the direct of the indirect
method)
2. investing activities, or
3. financing activities, with the latter two categories
presented on GROSS BASIS.
Let us define!
• Cash - comprises cash on hand and demand deposits
a. Cash on Hand
b. Cash in Bank

• Cash equivalents- are short-term, highly-liquid investments

that are readily convertible to cash and which are subject to an
insignificant risk of changes in value
OPERATING ACTIVITIES

- are the principal revenue-producing activities of the entity and

other activities that are not investing or financing activities

• Cash receipts from the sale of goods and the rendering of services;
• Cash receipts from royalties, fees, commissions and other revenue;
• Cash payments to suppliers for goods and services;
• Cash payments to and behalf of employees;
• Cash receipts and cash payments of an insurance entity for premiums and
claims, annuities and other policy benefits;
• Cash payments or refunds of income taxes unless they can be specifically
identified with financing and investing activities; and
INVESTING ACTIVITIES

- are the acquisition and disposal of long-term assets and other

investments not included in cash equivalents
• Cash payments to acquire property, plant and equipment, intangible and
other long-term assets
• Cash receipts from sale of properties, plant and equipment, intangibles
and other long-term assets;
• Cash advances and loans made to other parties
FINANCING ACTIVITIES
- are activities that result in changes in the size and composition
of the contributed equity and borrowings of the entity

• Cash proceeds from issuing share or other equity instruments;

• Cash payments to owners to acquire or redeem the entity’s shares
• Cash proceeds from issuing debentures, loans, notes, bonds, mortgages
and other short or long-term borrowings;
• Cash repayments of amounts borrowed
Presentation of Statement of
Cash Flows
For operating cash flows, the direct method of presentation is
encouraged but the indirect method is acceptable.
• the direct method shows each major class of gross cash receipts and
the gross cash payments.
Cash receipts from customer Pxx,xxx
Cash paid to suppliers (xx,xxx)
Cash paid to employees (xx,xxx)
Cash paid for other operating activities (xx,xxx)
Interest paid (xx,xxx)
Income taxes paid (xx,xxx)
Net cash from operating activities Pxx,xxx
The indirect method adjusts accrual basis net profit or
loss for the effects of non-cash transactions such as
depreciation expense, amortization expense and bad
debts expense.
Profit before interest and income taxes Pxx,xxx
Add: Depreciation expense xx,xxx
Impairment of goodwill xx,xxx
Amortization Expense xx,xxx
Bad Debts expense xx,xxx
(Increase)/ Decrease of receivables ( xx,xxx)/xx,xxx
(Increase)/Decrease of Inventories (xx,xxx)/ xx,xxx
Increase/ (Decrease) in Trade Payables xx,xxx/ (xx,xxx)
Interest expense Pxx,xxx
Less: Interest accrued not yet paid (xx,xxx)
Interest Paid (xx,xxx)
Income taxes paid (xx,xxx)
NET CASH FROM OPERATING ACTIVITIES Pxx,xxx
ILLUSTRATIVE EXAMPLE:
The differences in Zeena Bauan Corporation’s Balance Sheet accounts at December 31, 2017 and 2016 are presented below:
Assets Increase/Decrease
Cash and Cash Equivalents 420,000
Accounts Receivable, net ---
Inventory 80,000
Long-term investments (100,000)
Property, Plant and Equipment 700,000
Accumulated Depreciation ---

Liabilities and Stockholder’s Equity

Accounts payable and accrued liabilities (5,000)
Dividends Payable 160,000
Short-term BANK debt 325,000
Long-term debt 110,000
Ordinary share, P10 par 100,000
Share Premium 120,000
Retained Earnings 290,000
The following information relates to 2017:
• Net income was P790,000
• Cash dividends of P500,000 were declared
• Building costing P600,000 and having a carrying value of P350,000 was sold at P350,000
• All PPE were purchased for cash except for equipment costing P110,000 that was acquired through issuance of long-term debt
• Long-term investment was sold during the year. There were no other transactions affecting long-term investments.
• 10,000 ordinary shares were issued for P22 per share.

REQUIREMENT:
Prepare the Statement of Cash Flows for year 2017.
 Zeena Bauan Corporation
Statement of Cash Flows
For the year ended December 31, 2017
Cash Flows from operating activities:

Increase in Inventory (P80,000)

Decrease in Accounts Payable (5,000)
Net Income 790,000
Non-Cash Item-Depreciation Expense* 250,000
Net cash from Operating Activities P955,000
Cash Flows from Investing Activities:

Proceeds from the sale of Building P350,000

Proceeds from the sale of Long-Term Inv 100,000
Purchase of Equipment** (1,190,000)
Net cash from Investing Activities (740,000)
Cash Flows from Financing Activities:

Proceeds from issuance of shares*** P220,000

Short-term BANK Debt 325,000
Dividends Declared**** (340,000)
Net cash from Financing Activities 205,000

NET INCREASE IN CASH P420,000

THANK YOU!
Getting To Know Your Subject
Teachers