CBMEC 2

Managerial Accounting
Understanding Financial
Statements
Cash Flow Statement
March 6, 2023
 Topics for Discussion
1. Definition of Cash Flow
Statement
2. Purpose of Cash flow Statement
3. Classifications of Cash Flows
4. Methods of Cash Flow
Preparation
 Cash Flow Statement
Definition:
• summarizes the amount of cash and cash
 equivalents entering and leaving a
company.
• measures how well a company manages
its cash position, meaning how well the
company generates cash to pay its debt
obligations and fund its operating
expenses.
 Cash Flow Statement
Purpose:
1. provides information about the
cash receipts and cash payments of
an enterprise during a period.
2. financial statement that
summarizes the operating, investing,
and financing activities of a firm
 Cash Flow Statement
3. Information provided enables users to
evaluate the changes in net assets of an
entity, its financial structure, liquidity and
solvency
4. Useful in assessing the ability of the
entity to generate cash and cash equivalents
5. Enhances the comparability of operating
performance by different entities.
 Classification of Cash Flows
1. Operating activities –
• Cash effects of transactions and
other events that enter into
determination of profits and loss.
• Cash flows derived primarily from
the principal revenue producing
activities of the entity
 Operating activities
A. Direct method:
- the entity’s net cash provided by
(used in) operating activities is
obtained by adding the individual
operating cash inflows and then
subtracting the individual operating
cash flows
 Operating activities
Direct Method

Operating Activities
Cash Received from customers 800
Cash paid to suppliers (150)
Employees compensation (200)
Other expenses paid (250)
Net Cash Flow in Operating 200
Activities
 Operating Activities
•Indirect Method:
– derives the net cash by adjusting
profit for income and expense items not
resulting from cash transactions.
- profits are adjusted followed by the
addition of expenses and charges (ex.
Depreciation that did not entail cash
payments.
 Operating Activities
• decreases (increases) in current assets
and increases (decreases) in current
liabilities are added (subtracted) to profit
or loss to obtain net cash provided by
(used in) operating activities.
• the cash flow is computed on an accrual
basis
 Cash Flow Investing Activities
• Include making and collecting loans,
acquiring and disposing of investments in
debt or equity securities; and obtaining and
selling of property and equipment and other
productive assets.
• Cash inflows : - receipts from sale of
property and equipment
- receipts from sale of investments in debt or
equity securities
- receipts from collection on notes receivable
 Cash Flow Investing Activities
• Cash outflows:
- payments to acquire property and
equipment
- payments to acquire debt or equity
securities
- payments to make loans to others
generally in the form of notes receivables
 Cash Flow Financing Activities
• Includes obtaining resources from owners
and creditors;
• Cash inflows -receipts from investment
by owners (capital introduced)
- receipts from issuance of notes payable
• Cash outflows -payments to owners in
the form of withdrawals; payments to
settle notes payable
 Cash Flow Statement
Example Direct Method
Cash Flow from Operating
Activities
Cash received from clients 60,400
Payments to suppliers (10,000)
Payments to employees (13,800)
Payments for office rent (8,000)
Payments for insurance (14,000)
Payments for utilities (3,000)
Net cash provided by (used 11,200
in) operating activities
Cash flow from Investing
Activities
Payments to acquire service (420,000)
vehicles
Payments to acquire office (15,000)
equipment
Net Cash Provided by (used (435,000)
in) Investing Activities
Cash flow from Financing
Activities
Cash received as investment by 250,000
owner
Cash received from borrowings 210,000
Payments for withdrawals of (14,000)
owner
Net Cash provided by (used in) 446,000
financing activities
Net increase (decrease) in cash 22,200
Cash Balance at the beginning 0
of the period
Thankyou
GOD BLESS