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ABM - FABM2 12 - Q1 - W5 - Mod5
ABM - FABM2 12 - Q1 - W5 - Mod5
QUARTER 1 – MODULE 5
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Introductory Message
Dear Teachers and Learners! The writer welcomes you all to this module for the
subject Fundamentals of Accountancy, Business and Management 2 in the ABM Strand of
Senior High School. The discussion focussed on the preparation of financial statements and
its analyses to determine the profitability, liquidity and solvency of the business.
As your partner in learning, I hope that you will not miss out every detail that the
writer would like you to learn in this material. Do enjoy as there are challenging and
interesting activities inside this learning modules. Congratulations in advance for this will
make you the master of your own learning.
Ops! you wait for a while, for an easy use of this material take note of some few
reminders
1. Take your time to read every detail that this module contains.
2. This material contains Module 1 and Module 2 and each of which is provided
with activities/tests that will surely lead you to learn.
3. Here are the Icons used as your guide in every part of the lesson.
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4. Please do follow the directions given per activity so your experience to the use
of this material will be meaningful and fruitful.
5. Answer all the tests in this material.
6. As a courtesy to the future users, PLEASE DO NOT WRITE ANYTHING ON
ANY PART OF THIS MODULE. Write your answer/s on a separate sheet of
paper, notebook, workbook or whichever is specified by your facilitator
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Table of Contents
Page
What This Module is About………………………………………………….. ii
Icons of this Module………………………………………………………….. iii
MODULE 4 Statement of Cash Flows…….…………………… 3
Activity
1.4.2 Classify Me…………………………………………… 9
1.4.3 Organize Me………………………………………….. 10
1.4.4 Solving the Problem Case #1………………………. 10
1.4.5 Solving the Problem Case #2………………………. 11
1.4.6 Choosing the Right One ……………………………. 11
1.4.7 Tell Me The Truth……………………………………. 13
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Less
on 4 Statement of Cash Flows (SCF)
This lesson discusses the components and the structure of a Cash Flow
Statement (CFS) that will equip you in preparing the said financial report.
Furthermore, this lesson aims to discuss the three major sections of Cash Flow
Statement: 1. Operating, 2. Financing, 3. Investing Activity.
At the end of this lesson, you are expected to solve exercises and problems
that require the preparation of a Cash Flow Statement (CFS).
What I Know
Before starting with this module, let us see what you already know about
Statement of Cash Flow. Answer the questions below.
Directions. Read and analyze each item carefully. Write the letter corresponding to the best
answer on your answer sheet. 1 point each.
3. What is the effect of paying loan principal on cash flow and profits?
A. On profit – Decrease; On cash - Decrease
B. On profit – Decrease; On cash - None
C. On profit – Increase; On cash - Decrease
D. On profit – None; On cash - Decrease
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4. Which of the following is false?
A. A profitable business will never run out of cash.
B. Companies undergoing expansion can sometimes face a cash shortage.
C. In case cash outflows exceed cash inflows on an on-going basis, the
business will eventually run out of cash,
D. Cash is the lifeblood of a business and without it the business will
eventually die.
7. Which of the following would reduce the cash balances of a business and not
reduce the profit?
A. Distribution costs
B. Dividends paid
C. Interest paid
D. Wages paid
10. Which of the following is not a cash outflow for the business?
A. Depreciation
B. Dividends
C. Interest payment
D. Taxes
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What’s In
What’s New
To achieve the objectives of this lesson, you must remember to do the following:
Read the lessons carefully.
Follow all directions and given instructions.
Answer all given tests and activities.
Learn to familiarize the following terms:
TERM DEFINITION
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gross cash payments (Deloitte Global
Services Limited, 2015).
Directions:
1. Get a piece of paper and write your monthly allowance (computed by daily
allowance x number of days in a month)
2. Determine any liabilities that you’ve got from classmates, friends, family
members.
3. Write the amount you spend on food, transportation, etc. (make it monthly
to match your allowance)
4. Deduct the amount you spend from the amount of your allowance.
Processing Questions:
1. How much is your accumulated monthly allowance? From what sources
are they from?
2. How much is your total monthly expenses? What are these expenses?
Associate the sources of your monthly allowance as your cash inflows and
your monthly expenses as your cash outflows.
3. How would you differentiate a personal statement of comprehensive
income from that of your personal cash flow statement?
4. Reflect on the importance of knowing your cash inflows and cash outflows.
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What Is It
A statement of cash flow has three major sections namely operating, financing
and investing activities. Each section represents the classification of the
organization’s cash related activities.
This is a formal statement that classifies cash receipts (inflows) and cash
payments (outflows) into operating, financing and investing activities. It shows the
net increase or decrease in cash during the period and the cash balance at the end
of the period.
Operating Activities
Operating activities are the base-line cash of activities of the entity related to
its normal operating 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 (IASB, 2001) lists the following transactions as examples
of operating activities.
ACTIVITIES EFFECTS
+ (increases cash) inflow
- (decreases cash) outflow
Cash receipts from sale of goods and rendering of +
services
Cash receipts from royalties, fees, commission, +
and other revenues
Cash payments to suppliers of goods and services -
Cash payments to employees -
Cash payments to income taxes -
Interest paid -
Interest received +
Dividends received +
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Investing Activities
ACTIVITIES EFFECTS
+ (increases cash) inflow
- (decreases cash) outflow
Cash payments to acquire property, plant and -
equipment
Cash payment to acquire intangible assets -
Cash receipts from sales of property, plant and +
equipment
Cash receipts from sales of intangible assets +
Cash receipts from sale of long-term assets +
Financing Activities
ACTIVITIES EFFECTS
+ (increases cash) inflow
- (decreases cash) outflow
Cash investment from owners +
Cash proceeds from bank loans +
Cash distribution from owners -
Repayment of bank loans -
1. Direct Method
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Soriano Trading
Statement of Cash Flows
For the Period Ended December 31, 2019
Cash Flow from Operating Activities:
Cash receipts from rendering of services 200,000.00
Cash payment to suppliers of goods and services ( 50,000.00 )
Net cash flow from Operating Activities 150,000.00
Cash Flow from Investing Activities:
Proceeds from sale of equipment 100,000.00
Net cash flow from Investing Activities 100,000.00
Cash Flow from Financing Activities:
Proceeds from cash investment from owners 250,000.00
Proceeds from bank loan 30,000.00
Payment to owners ( 15,000.00 )
Net cash flow from Financing Activities 265,000.00
Net Change in Cash 515,000.00
Cash, beginning of the period 300,000.00
Cash , end of the period 815,000.00
Sample of Statement of Cash Flows using Direct Method.
2. Indirect method
Soriano Trading
Statement of Cash Flows
For the Period Ended December 31, 2019
Cash Flow from Operating Activities:
Income before income tax 125,000.00
Adjustment for:
Depreciation 10,000.00
Amortization 20,000.00
Operating income before working capital changes 155,000.00
Increase in accounts receivable ( 10,000.00)
Decrease in inventories 15,000.00
Increase in accounts payable 5,000.00
Decrease in notes payable (15,000.00)
Net cash flow from Operating Activities 150,000.00
Cash Flow from Investing Activities:
Proceeds from sale of equipment 100,000.00
Net cash flow from Investing Activities 100,000.00
Cash Flow from Financing Activities:
Proceeds from cash investment from owners 250,000.00
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Proceeds from bank loan 30,000.00
Payment to owners ( 15,000.00 )
Net cash flow from Financing Activities 265,000.00
Net Change in Cash 515,000.00
Cash, beginning of the period 300,000.00
Cash , end of the period 815,000.00
Sample of Statement of Cash Flows using Indirect Method.
For the purpose of this text, the direct method will be used; it is more
preferred by IAS 7 (IASB 2001). Furthermore, beginners in preparing the statement
of cash flow will appreciate the said format.
SORIANO TRADING
Statement of Cash Flows
For the Period Ended December 31, 2019
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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Illustrative Example of Statement of Cash Flows:
What’s More
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What I Have Learned
What I Can Do
Below are the cash transactions of Lopez General Services for December 31, 2019
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Activity 1.4.5. Solving the Problem
Below are the cash transactions of Mercado Trading for December 31, 2019:
Directions. Read and analyze each item carefully. Write the letter corresponding the best
answer on your answer sheet
3. What is the effect of paying loan principal on cash flow and profits?
A. On profit – Decrease; On cash - Decrease
B. On profit – Decrease; On cash - None
C. On profit – Increase; On cash - Decrease
D. On profit – None; On cash – Decrease
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4. Which of the following is false?
A. A profitable business will never run out of cash.
B. Companies undergoing expansion can sometimes face a cash shortage.
C. In case cash outflows exceed cash inflows on an on-going basis, the
business will eventually run out of cash,
D. Cash is the lifeblood of a business and without it the business will
eventually die.
7. Which of the following would reduce the cash balances of a business and not
reduce the profit?
A. Distribution costs
B. Dividends paid
C. Interest paid
D. Wages paid
10. Which of the following is not a cash outflow for the business?
A. Depreciation
B. Dividends
C. Interest payment
D. Taxes
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Additional Activity
Now, that you are finished accomplishing the module, let us check what you
have learned. Answer the questions given below by writing letter “T” if the statement
is true and “F” if the statement is false.
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Answer Key
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What I Can Do / Activity 1.4.4 – Solving the Problem
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Activity 1.4.5. Solving the Problem
MERCADO TRADING
Statement of Cash Flows
For the Period Ended December 31, 2019
Cash Flow from Operating Activities:
Cash receipts from goods sold 150,000.00
Cash payment of goods (100,000.00)
Payment of utilities ( 30,000.00)
Payment of rent ( 10,000.00)
Net cash flow from Operating Activities 10,000.00
Cash Flow from Investing Activities:
Proceeds from sale of equipment 100,000.00
Net cash flow from Investing Activities 100,000.00
Cash Flow from Financing Activities:
Withdrawal of the owner (10,000.00)
Net cash flow from Financing Activities (10,000.00)
Net Change in Cash 100,000.00
Cash, beginning of the period -
Cash , end of the period 100,000.00
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References
Additional References:
https://edge.pse.com.ph/openDiscViewer.do?edge_no=5b3feb584ad68ec41db82e3
77ee70f3b)
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