NAME: TEACHER:

________________________________ _______________________________

STRAND AND SECTION: DATE:

________________________________ _______________________________

Fundamentals Of Accountancy, Business and Management 2 -

Grade 12- Quarter 1 Week 5B

PREPARING A CASH FLOW STATEMENT (CFS)

BACKGROUND INFORMATION FOR LEARNERS

The Statement of Cash Flows provides information about the cash receipts and cash
payments of an entity during a period. It provides information that enables users to evaluate
the changes in the net's assets of an entity, its financial structure, liquidity and solvency. Cash
Flow information is useful in assessing the ability of the entity to generate cash and cash
equivalents.

Preparing the Cash Flow Statement

1. Determine the heading

The heading of 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 the
cash flow for the illustrative case:

2. Analyze the Cash Transaction

Every cash transaction should be carefully analyzed to determine its nature, the
effect and the classification or section where it belongs.

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 3. Prepare the Operating Activities Section
All cash transactions that will affect net income of profit and loss will be classified
as operating activities. See examples of transactions under operating activities in the
previous discussion.

4. Prepare the Investing Activities Section

All cash transactions that will affect the non-current assets are classified under
this section. See examples of transactions under investing activities on the previous
discussion.

5. Prepare the Financing Activities Section

All cash transactions affecting non-current liabilities and equity will be classified
as financing. See examples of transactions under this section in the previous
discussion.

6. Determine the net change in cash, Cash at the beginning of the period and
Cash at the end of the period.

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ILLUSTRATION: DIRECT METHOD

Ren Ren merchandising started its business last October. The following are its transactions.
Classify each transaction as an operating, investing, or financing activity.
Transactions Activity
1. Financing
2. Proceeds of sale of Investing
3. Operating
4. Operating
5. Financing
6. Operating
7. Cash Financing
8. Operating
9. Investing
10. Financing
Based on the classification of activities above, the following is the statement of cash flow for
Ren Ren Merchandising for the year ended December 31, 2019.

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 Ren Ren Merchandising
Cash Flow Statement
For the year ended December 31, 2019
Cash Flow from Operating Activities
Cash Receipts:
Collection from customers 315,800
Rent Income 42,000
Interest Income 9,000
Cash Payments:
Operating Expenses
Net Cash from Operating Activities 215,800
Cash Flow from Investing Activities
Cash Receipt:
Proceeds from sale of furniture and equipment 23,000
Cash Payment:
Purchase of furniture
Net Cash from Investing Activities
Cash Flow from Financing Activities
Cash Receipts:
Investment of Owner 22,200
Proceeds of bank loan 200,000
Cash Payments:
Cash Withdrawal of Owner
Payment of Bank Loan
Net Cash Flow from Financing Activities 42,200
---------------
Net Increase/Decrease in Cash 250,000
Cash Balance, Jan.1, 2019 200,000
----------------
Cash Balance, Dec. 31, 2019 450,000

Note: The beginning balance of cash is added to the net increase or decrease in cash
resulting from the operating, investing and financing activities in order to get the ending
cash balance which is the same as the amount of the cash account presented in the
Statement of Financial Position. l

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ILLUSTRATION: INDIRECT METHOD

The changes of Currents Assets and Current Liabilities are summarized as follows:
2020 2019 INCREASE
(DECREASE)
Accounts Receivable 940,000 350,000 590,000
Merchandise Inventory 175,000 100,000 75,000
Prepaid Insurance 15,000 20,000 (5,000)
Accounts Payable 170,000 150,000 20,000
Accrued Salaries Payable 25,000 10,000 15,000
Accrued Interest Payable 10,000 15,000 (5,000)
Income Tax Payable 350,000 250,000 100,000
Unearned Rent Income 10,000 40,000 (30,000)

Note: Include the non-

of

The net cash flow from Operating Activities using indirect method may appear
as follows:
NET INCOME 1,500,000
Increase in accounts receivable (590,000)
Increase in merchandise inventory (75,000)
Decrease in prepaid insurance 5,000
Increase in accounts payable 20,000
Increase in accrued salaries payable 15,000
Decrease in accrued interest payable (5,000)
Increase in income tax payable 100,000
Decrease in unearned rent income (50,000)
Depreciation 50,000
Amortization of Patent 10,000
Net Cash Flow from Operating Activities 1,000,000

Note: The direct method and indirect method are applicable only to operating
activities.

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 LEARNING COMPETENCY

Prepare a Cash Flow Statement (CFS). [ABM_FABM12-lf-11]

ACTIVITIES

ACTIVITY 1: PREPARE ME DIRECTLY.

Direction: The following data are taken from the records of Albay Delivery Services for the
year 2020. Prepare a Cash Flow Statement, and determine the following: 1.) Net Cash Flow
from Operating Activities; 2.) Net Cash Flow from Investing Activities; 3.) Net Cash Flow from
Financing Activities; 4.) Net Increase/Decrease in Cash; 5.) Cash Balance on December 31,
2020.
Cash Received:
From Customers 980,000
Collection of Accounts 90,000
Proceeds of financing loan 420,000
Proceeds from sale of furniture 55,000
Dividends Income 23,000
Commission 11,000
Additional Investment 88,000
Rent Income 99,000
Cash Paid:
Purchase of Land 700,000
Interest on loan 45,000
Partial payment of financing loan 180,000
Operating Expenses 310,000
Taxes and Licenses 3,750

Cash Balance, January 31 98,000

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ACTIVITY 2: PREPARE ME INDIRECTLY.
Direction: Prepare the Net Cash Flow from Operating Activities using indirect method.
2019 2018 INCREASE
(DECREASE)
Accounts Receivable 250,000 140,000 110,000
Merchandise Inventory 110,000 175,000 (65,000)
Prepaid Insurance 20,000 15,000 5,000
Accounts Payable 150,000 170,000 (20,000)
Accrued Salaries Payable 10,000 25,000 (15,000)
Accrued Interest Payable 15,000 10,000 5,000
Income Tax Payable 150,000 50,000 100,000
Unearned Rent Income 40,000 10,000 30,000
Depreciation 15,000
Amortization 20,000
Net Income 500,000

Direction: The following data are taken from the records of Dr. Quakie. Prepare a Cash Flow
Statement using a Direct Method by determining the following:
1. Net cash flow from operating activities.
2. Net cash flow from investing activities.
3. Net cash flow from financing activities.
4. Net Increase/decrease in cash.
5. Cash Balance on December 31, 2017
Collection of Accounts 990,000
Cash collectible from patients 2,600,000
Depreciation Expense 30,000
Cash purchase of equipment 110,000
Provision of Bad Debts 8,400
Dividends Received from stock investment 14,000
Royalty Income received 9,000
Rent Income received 32,000

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 Operating Expenses 180,000
Principal of bank loan paid 600,000
Interest paid on bank loan 24,000
Proceeds from sale of furniture 60,800
Cash Balance on January 1, 2017 is 188,000

GUIDE QUESTIONS

1. How to classify the components and structures of a cash flow statement?

2. How to prepare a cash flow statement using a direct method?
3. How to prepare a cash flow statement using an indirect method?

REFLECTION

Rate yourself. For each parameter, please put a check on the column that shows how much
you understand the Learning Activity Sheet.

Parameters
Need Confused Confident
Support
1. I can classify the different components
and structures of a cash flow statement.
2. I can prepare direct method cash flow
statements.
3. I can prepare an indirect method of cash
flow statements.

REFERENCES

Ong, F. L. (2017). Fundamentals of Accountancy, Business and Management

2. C & E Publishing, Inc.
Reyes, V. D. (2017). Fundamentals of Accountancy, Business and Management
2. GIC Enterprises & Co., Inc.
Valix, C.T., et al. (2010). Financial Accounting Vol. 3. GIC Enterprises and Co.,
Inc.
https://www.youtube.com/watch?v=-6JAVkrxgsE

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 ANSWER KEY

Activity 1: PREPARE ME DIRECTLY.

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Activity 2: PREPARE ME INDIRECTLY.

Prepared by:
CHERRY B. LANTICAN, T-III
San Jose National High School
San Jose Malilipot, Albay

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