Lesson 25

STATEMENT OF CASH FLOWS

Good day everyone today we're going to discuss. Today everyone, today we're going to discuss,
inaantok-antok pa ako kanina, pasensya na and today we're going to discuss preparation ng cashflow
statement. I’ve already introduced this statement in the last video. Kasi ito ‘yun wala sa basic accounting
equation na video natin. So, ano ba ‘yun dahilan ba’t tayo gagawa ng cashflow statement and ayun nasabi
ko na ‘nung nauso ‘yung accounting, hindi naman prevalent ang transaction. Cash basis ang transaction
no’ng araw; wala kang pera, wala kang transaction pero nag-evolve ‘yung credit system at nagkaroon ng
ano nang malawakang pangungutang kung baga naiba’yung pananaw ng tao sa credit, noon kasi negative
ang impact ng taong may utang e, ngayon kasi ‘pag wala kang utang ibig sabihin walang nagtitiwala sayo
kaya wala kang mautangan. So, dito ngayon dahil sa gan’yang pananaw, evolution of the credit system in
the world of commerce kinakailangan na ng cashflow statement

Ang cashflow statement kasi ipapakita niya ‘yung dahilan kung bakit ganito ‘yung balance ng
cash mo, kasi kapag ka cash basis ‘yung recording ng-- system of recording ng business,’yung cash— net
cash balance mo at the end of the period ‘yun ‘yong kinita mo sa pagnenegosyo. So, sa accrual basis,
kung ang accrual basis ay more on cash ang transactions nila, wala silang masyadong utang
magrereconcile ‘yung ending cash balance do’n sa net income e kung cash ang kanilang karaniwang
transaction pero dahil hindi na nga gano’n ang set-up ng commerce world ngayon, mas marami na ‘yung
utang kinakailangan na ng cashflow statement. Ito ‘yung cash flow stement irereconcile mo lang naman
‘yung net income mo using accrual basis of accounting do’n sa net income mo using cash basis of
accounting.

So, na-introduce ang pagrequire nito in 1987. So, matagal in 1987 do’n na nagsimula mag-ano
‘yun mga utang ng tao lumaki nang todo ‘yung utang ng tao so, ‘yun accrual and cash basis nagkaroon na
ng malaking disparity that is why, kailangan na ng cashflow statement para madetermine saan ba napunta
‘yung pera?, saan ba nanggaling ang pera?, sa’n napunta ‘yung pera? Binigyan ka ng pera pamalengke,
ito ‘yung csh inflow mo. Sa’n mo ginastos?— ‘yun ‘yong cash outflow mo. Ano ang natira? so that is
your ending cash. So, parang ikaw namuhunan ka, ito ang pinuhunan mo, ito ang ginastos, magkano
natira? ‘yun ang net income mo kung cash basis ‘yan diba. Pero accrual basis tayo so kailangan ireconcile
natin ‘yung net income natin. Explain natin, ang laki-laki ng net income natin, ang liit ng cash natin or
ang laki-laki ng cash natin, ang liit ng net income natin. What’s the reason? So, kailangan anong dahilan
bakit gano’n lang ang income mo? O anong dahilan bakit ang liit lang ng income mo? Or bakit ang
daming cash? Or ba’t kaunti ‘yung cash mo? Kasi cash alone na malaki in an accrual system of
accounting e hindi natin pwedeng pagkatiwalaan na net income ‘yan. Kasi nga accrual ang system niya
so, we have to reconcile.

What is a cash flow statement or statement of cash flow? So, it is a financial statement that
summarizes uhm ang ating magic ballpen, it is a that summarize the amount of cash and cash equivalents
entering and leaving the company. So, in and out; cash in, cash out that explains the difference between
the beginning cash and the ending cash balance of the business. Mayro’n kang beginning tapos along the
way mayro’n kang natanggap at mayro’ng lumabas, anong natira? Bakit gano’n? So, it is a financial
statement that converts the accrual basis of accounting into a cash basis of accounting that was what I was
explaining a while ago, that measures how well a company manages its cash position. Kung pa’no uhm or
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STATEMENT OF CASH FLOWS

gaano kagaling ang management sa paghawak ng cash at pagbayad ng utang. Kasi im’maintain ‘yung
good credit standing kapag hindi ka nakakabayad wala ng magpapautang sayo ‘yun ‘yong sinasabing
kaya ka—kaya (uhm) maraming nangungutang ngayon kasi e ‘yun ang basehan na magaling ka
magbayad, ‘yung nagpapautang sayo. Okay so ito ‘yung cash ledger natin on cash account natin
Mayroon tayong account number, heading ng account, page number ng ledger. Kapag maram--- kapag
cash usually may page number ‘yan kasi maraming cash transactions

So, we have the date, the posting reference, the amount that is the debit side and then we have the
credit side, we have the date, the particulars, the posting reference and the amount so we have the credit
side itong uhm we have the beginning balance, and then we have the increases in cash, sales and earned
revenue accounts receivable, issuance of common stock then we have the credit, we have the purchase of
property plant equipment, payment of accounts payable, payment of salaries expense, payment of interest
expense, payment of income tax so, this is the total so the difference is (uhm) this is the difference rather,
the total is one million, ano ba ang total nito? So ano ba ang total nitong dalawa? Ito ang total nito,
because this is the heavier side, ito ‘yung total nito so, one millon zero four one minus five three zero, ito
yung total ng disbursements or payment. So, this is our… our cash account, ito ‘yung iaanalyze natin to
come up with (uhm) with the presentation of cash flow statement, ito ‘yung tinatawag na direct method
ditto ka mismo kukuha ng data mo sa cash account natin, ito ‘yung uhm more realistic, more accurate or
actually, hindi na more accurate kasi accurate rin ‘yung isa kaya lang mas maraming details, mas marami
kang basis of analysis.

So, a cash flow statement complements the balance sheet and income statement and is mandatory
part of a company's financial report since 1987. Purposes of the cash flow statement, the cash flow
statement allows investor to understand how a company's operations are running, where its money is
coming from, and how money is being spent. The cash flow statement is important since it helps investors
determine whether a company is standing on solid financial ground, creditors on the other hand, can use
the financial (uhm) cash flow statement to determine how much cash is available for the company to find
its operating expenses and pay its debts. So uhm cash flow statements represent the liquidity status of the
business, does the business have enough money to pay operating expenses and creditors?
components of cash flow statement. So, ang cash flow statement (uhm) remember natin ‘yung equation
natin assets is equal to liabilities plus capital, so, paano natin id’dissect ‘yung mga accounts na ito to
come up with the (uhm) cash flow statement. So, we have the curr—kasi sa curr— uhm cash flow
statement ‘yung cash mo, ic’classify mo into operating activities, financing activities, investing activities
so, ano-ano ‘yung ibig sabihin ng (uhm) operating activities

So, ‘yung mga inflows and outflows pertaining to the operation of the business ‘yung primary
purpose ng business; merchandising ba ‘yan? Or service ba ‘yan? Or manufacturing ba ‘yan? So, when
we talk about operating activities, anong composition niyan? Current assets and current liabilities except
marketable securities so current asset and current liabilities application and disposition of these two to
accounts are or--- the these two groups of accounts are for operating activities
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STATEMENT OF CASH FLOWS

Itong non-current asset ay para sa investing activities plus the marketable securities; although current
asset is also considered as investing activities. So, marketable securities and non-current asset(s) that is
investing activities

Financing activities refers to non-current liabilities and equity Kapag sinabi mo kasing financing
activities, saan ba nanggagaling ang source ng pera mo? Sa’n mo rin ba inaaply? So, ‘pag sinabing mong
financing, pera na nagr’run ng business ‘yan para umandar ‘yung business mo, so, issuance of bonds,
issuance of share of stocks, uhm long-term loan obligation so, these are non-current activities and a non-
current liabilities and activities that is which are considered financing activities.

So, investing naman, you’re putting up something for future use so, itong non-current asset for
future use. Pag nabenta mo yung non-current asset mo, maaaring kumita ka diyan, so, marketable
securities pwedeng kang kumita dyan, so, saan ka pwedeng kumita other than operating. Okay, so yun
yung components of Cash Flow Statement, kailangan i-classify mo ang mga accounts ng ah, ang mga
sources ng cash and disposition ng cash into operating, investing and financing activities para maunawaan
mo ah malaki ang kita, kita, malaki ang kita ko sa pag-operate. Malaki ang kita ko sa pag-invest, malaki
yung ah, ah yung pine, yung force ng ano ko ng, ng business ko, more on liabilities or more on issuance
of shares of stocks. So, maa-analize mo ahh, net income mo or cash mo kung saan mo dinala, parang ine-
explain mo lang talaga kung saan mo dinala yung cash at saan nanggaling ang cash So eto na tayo sa, ah
operating activities, current assets except marketable securities. So, current assets and current liabilities
ito, current asset and current liabilities hindi ata nalagay. So dalawang current, current assets, current
liabilities except lang dun sa current assets yung marketable securities kasi napakasok yan sa financing
activity

So, Operating Activities, receipts from sales of goods and services; interest payments, income tax
payments, payments made to suppliers of goods and services used in production, salary and wage
payments to employees, rent payments, any other type of operating expenses and income. Yun yung ahh,
operating activities So investing, non-current asset lang siya pero kasama yung marketable securities
Yung tinanggal natin dun sa current asset na marketable securities from operating, ilalagay natin sa
investing, so, tatandaan niyo yan kung paano gumawa. Investing Activities, purchase of fixed assets,
purchase of investments such as stocks or securities-cash Lending money , sale of fixed assets, sale of
investment securities except na lang tong investment securities. Ah kung ahh… seller of securities siya.
So, kung seller of securities siya, stock broker siya, edi ano yan magiging operating, pero dito sa
assumption na to hindi ito ang business niya, ang business niya might be merchandising or uhmm rental
business but not ah, a stock broker kasi kung ito na yung imbentaryo mo then this becomes an operating
activity collection of loans and insurance proceeds. So, these are the example of investing activities.

Okay, components of cash flow statement. We have the non-current liabilities and equity. So ito
yung mga talagang uhm sources ng iyong uhm pamumuhunan, loans, non-current loans kasi kung current
yan nasa operating yan yung mga accounts payable pero, pero yung mga long-term loan obligations, that
is part of the financing activity and so which and so is issuance of shares of stock kung corporation or
additional capital from partners or owners in case of partnership and sole proprietorship.
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STATEMENT OF CASH FLOWS

So, financing activities include: dividend payments, stock repurchases, bond offerings and
generating cash, pero kung ano yan sole proprietorship yan additional investment ahh drawings atsaka
uhm admission of new partner. Methods of computing cash flows, so, there are two methods of
computing for cash flow uhm for presenting the cash flow statement, Direct method and indirect method.
I’ve already discussed the direct method yung sinabi ko kanina na, ang babasehan natin ay yung cash
ledger natin or yung cash account, doon natin titignan yung mga data to come up with the analysis on, on
the analysis of cash sure on sources and applications. So direct method, doon mo mismo titignan sa cash
ledger
So direct method, beginning balance, ending cash balance, increase decrease in cash, ito lang yung
titignan natin yung increase (decrease) in cash. Yan ang ie-explain natin whether that is a direct method
or an indirect method, you have to come up with the same increase (decrease) in cash, same ending cash
balance for that matter so ito yung ano natin ah this is a direct method.

So cash flow of Terimacor Drug store using the direct method so ang ina-analize natin yung
cash account, ano-ano ba ang nasa cash account? So eto yung mga data sales, unearned revenue, accounts
receivable, common stock. So, alin dyan sa mga yan ang sources ng cash, so anong total niya tapos ano
pa, sales - magkano yung natanggap, eto yung nalagay P440,000 – cash received from customer, So ano
daw ang composition niyan customer natanggap. The sales, unearned revenue tsaka accounts receivable
Collection of account, advance collection of a revenue at tsaka cash sales so, itong tatlo na ito ang total
nan ay P440,000. So, cash receipts, cash received from customers, so cash payments saan ba inapply yung
uhm operation kasi tayo diba operating so more on sales and operating expenses. So, ano-ano yung
pinaggamitan ng cash para sa operation, meron tayong suppliers, employees, interests, and income taxes.
So, meron tayo niyang P70,000, P120,000, P12,000 and P9,000, so yung pag tinotal natin yan 211 ideduct
natin dito sa 440, we will arrive at P229,000, this is the cash net cash provided by operating activities and
then yung cash na nakuha natin sa operation. Now, bumili tayo ngayon ah tignan natin yung investing so,
saan ba natin inapply, saan tayo naglagay ng malaking pera sa Property, Plant and Equipment
And then, wala ng iba, yan yung ahh pinag-ano natin doon nag-invest tayo doon bumili tayo ng malaking
makinarya edi part yan ng daily operation pero that is an investment. Now, cash flow from financing
activities yung capital, yung pamumuhunan o kaya long term noan o loans obligations so, meron tayong
issuance of common shares of stocks. Ito application into source so, 200 ang difference niya 200, ima-
minus natin sa 229 so, we will have 29, so the difference in cash outflow and inflow is P29,000 . So, this
should be, this P29,000 should be the ending cash balance, dapat mag-reconcile yan, so anong cash
balance natin nung January 1, P501,000, ano yung cash balance natin nung December, P530,000? so,
what is the ending cash balance? P29,000. So, tama yung statement of cash flow natin kasi reconciled
itong P29,000 net income inflow sa net increase in cash. So, kung net cash inflow yan, net increase in
cash. Kung net cash outflow yan edi net decrease in cash, okay.

Mas madaling gawin ang direct method kung titignan sa illustration pero sa totoong buhay kasi
voluminous yung transaction sa cash eh masyadong marami so, mahirap magsort that is why yung mga
accountant mas pineprefer nila ang indirect method. So, let’s see bakit indirect method eh, pero mas
maganda ito kasi nakikita mo talaga kung saan inaply yung pera, saan nanggaling yung pera mas
maganda yung analysis mo, kasi sa indirect method ganto yung presentation nila, so eto na yung ating ano
noh.
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STATEMENT OF CASH FLOWS

Using the direct method we came up with this cash receipts, cash disbursement, net cash
provided by or inflow from operating. So, we have this 300 uhm Investment dun sa Property, Plant and
Equipment so naka negative yan and then, issuance of common stock which is P100,000 so that this
increases the cash, so ang net effect ay uhm increased by P29,000, eto yung beginning, eto yung ending
so increased by 29 so ito yung cash flow statement using uhm direct method. Makikita niyo yung mga
application niyong kapag nakikita niyo tong mga worth ng cash received, to suppliers, to employees yan
direct method yan.

Ang isang method ay indirect method, sa indirect method ito naman ang makikita niyo
decrease, increase, increase, increase, decrease, so hindi naka identify yung payment or receipt kundi
increase, decrease because pinagko-combine yung beginning balance sa ending balance so, ang difference
non ia-analyze niyo. Itong indirect method uhm simpleng gawin para sa accountant pero mahirap gamitin
ng mga org, mahirap gamitin ng mga users of information. So, ang prineprefer talaga ng accounting
standard principle ay ang direct method, Kase sa direct method ma-ievaluate mo talaga ‘yung… sources
and application of cash kase naka-identify doon. Dito madaling gawin ng accountant pero mahirap
unawain ng bumabasa. ‘Yung direct method madaling unawain ng bumabasa pero mahirap para sa isang
accountant because of the volume of transaction sa cash na i-aanalyze mo, i-sumarize mo at iaanalyze
mo. Maaaring magkamali in the process ‘yung accountant sa paggawa or pag-aanalyze sa dami ng… o sa
laki ng volume.
Pero medaling basahin ng user, so, mamimili ka pero sa accounting standards more ang pini-favor nila ay
ang direct method. Which is tama naman kase ang purpose mo ay magbigay ng information. Hindi
gumawa lang eh, kailangan masatisfy mo ‘yung babasa ng information. Pero ito ‘yung common na
ginagamit kase direct... Ayy indirect method ang common na ginagamit kase ang accountant ang
gumagawa eh, so pipiliin nila ngayon ‘yung madali para sa kanila. Kaya itong indirect method nalang
kase compare mo lang yung beginning at end then you come up with your… adjusted or ending balance
ng cash. Eh paano nga ba ‘yan? Eh kung ako yung babasa hindi ko rin maiintindihan. O kung nagka-
increase ‘yan. Parang ginagawa nating…. sobrang talino ng mga bumabasa, eh hindi naman lahat
accountant, so, decrease in accounts receivable. Ano ibig sabihin ng decrease in accounts receivable?
Nakolekta, so that is an application of ...ay application… source of cash, kase, nabawasan yung accounts
receivable mo ibig sabihin nakakolekta ka.
Increase in inventory, ginastos mo yung pera. So, naka-negative ‘yung sign. Kasi nabawasan yung pera.
increase in accumulated depreciation, tumaas yung expense mo pero wala namang cash na involved.
Therefore, you add it back. Ina-add mo sa net income.

So, ang starting point ng indirect method ay net income. Wala yan sa direct method. So, sa
indirect method ang starting point ay net income tapos mag-aarise ka sa ending cash balance, yung nga
yung sinasabi ko na nire-reconcile natin yung net income sa cash balance mo dahil kung walang utang
pareho lang dapat ‘yan. So, increase in accounts payable, ibig sabihin dumami ang accounts payable mo,
dumami rin ‘yung cash mo. Kase nagkaroon ka ng source mo para magkarron ng cash so positive siya,
ano. increase in wages payable, ibig-sabihin nagamit mo ‘yung pera. Hindi mo binayad ‘yung pera hindi
mo inapply yung pera. So, naretain ‘yung pera sayo so hindi mo siya ima-minus decrease in interest
payable, ibig sabihin nabawasan ang utang mo, nagbayad ka so, negative ang sign so, decrease in
Lesson 25
STATEMENT OF CASH FLOWS

inventory, bumili ka ng inventory. Decrease in income tax payable, ibig sabihin nagbayad ka ng tax mo
so… ahm increase in unearned revenue, ibig sabihin dumami ang utang mo uli’, ibig sabihin nagkaroon
ka ng cash, kase advance payment yon eh. So, nakakolekta ka ng cash. Ang total nito, ng lahat ng ito ang
tawag ay net cash provided by operation. I-aadd mo yan sa net income.

Next will be… application. Property, plant, and equipment na binili, so, ang tawag diyan ay
investing activity dahil bumili ka, nabawasan yung cash. So, negative ang sign. Common stock issue, ibig
sabihin nag-issue ka, nagkapera ka. So, that is financing activities. So, pagtinotal mo ‘tong lahat at inadd
mo o minanus mo doon depende kung negative or positive yan so, the difference will be your cash
inflow/outflow during the year. So, dapat balance siya doon sa net increase which is 29,000, so tama
yang cash flow statement, doon mo malalaman kung tama yung cash flow statement mo kung ang
difference ng beginning at ending cash ay equal doon sa net cash inflow or outflow mo during the year.
So, very ano. very interesting gawin ano? Kung pag-aaralan mo lang, madali yung indirect method,
kailangan alam mo ‘yung ibig-sabihin ng increase-decrease. Nag-increase sa receivable ibig sabihin
ano? Ibig sabihin nagkaroon ka ng cash, Ayy sorry, nag-increase sa accounts receivable ibig sabihin
nabawasan ‘yung cash mo nagdrecrease yung accounts receivable mo meaning nakakolekta ka,
nadagdagan ‘yung cash mo. So, lahat ng items sa. na ‘yan sa current ay i-aanalye mo into increase-
decrease, then kung ano ba effect niyan sa net income.So lahat ng increase in expenses na hindi naman
nagre-require ng cash outflow, ii-aadd back mo, oo, nadagdagan ‘yung expenses mo, eh hindi naman ‘yan
cash. so –iadd back mo doon para maka-arrise ka doon sa cash basis of net income.

Eh yung mga . ahh, hmm, expenses not requiring cash is ina add back kase yung accrual basis
net income ay ire-reconcile natin sa cash basis net income. , so ito ‘yung Comparative Balance Sheet. Ito
yung pinagkuhaan ng data na ‘yan, so ‘yung, cash, accounts receivable., ayan decrease in accounts
receivable by 30,000 galing ‘yan dito sa 2018 at 2019. So, ang difference ay 30,000. And so on and so
for. Kung ang inventory ay 50,000 and 10,000, nag-increase, ibig sabihin bumili ka. Okay? Ganun lang
‘yon, increase-decrease, 2019 and 2018 increase-decrease, nandito effect. So, ang gagamitin parin natin
ang classification na financing is.. long term liabilities. Oh, operating current assets and current
liabilities. Operating current assets and current liabilities. Investing non-current assets, except, hmm,
marketable security so which is not non-current asset but part of investing activities dahil financing
activities is a long term liabilities and a capital accounts. Tatandaan niyo, ‘yun lang ang tatandaan niyo sa
classifications ng mga accounts. Ito, ano ito. Hmmm. So kapag indirect method, magsisimula ka sa net
income, so kailangan sa indirect method, kailangan mo ng income statement syaka comparative balance
sheet to come up with the cash statement. Kung walang kang comparative statement hindi ka magagawa
ng indirect method pero makakagawa ka using direct method. Sa direct method, hindi ito kailangan ang
kailangan lang natin ay cash ledger or cash account., Okay, eto yung mga effects-effects ko na hindi
umandar. haha, so makikita niyo ‘yung mga arrow-arrow na ayaw umadar. We are done discussing this
item.

So, let’s go the next… Ito na yung mas magandang presentation using indirect method. So, ito
‘yung indirect method of cash flow statement. Eto ‘yung net income, wala tayong net income sa direct. Sa
indirect magsisimula tayo sa net income tapos nandito na yung increase-decrease. So, increase in
accounts receivable, increase in inventory, and so on and so for. Increase-decrease in current liability,
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STATEMENT OF CASH FLOWS

increase-decrease in current assets that become your operating activities. Increase-decrease in non-current
asset and marketable security. Ito ‘yung investing activities, increase-decrease in long term liabilities and
capital accounts that becomes your financing activities. So, the difference of net or this will be your
ending cash balance or net income using cash basis.

So, that ends our discussion. I hope you will able to learn something from this and we will
discuss the remaining topics, which are Closing Entries and Reversing Entries. The fact na dapat i-uunang
idiscuss ‘yung reversing pero sa cycle kase nasa dulo sila. I hope you learn something and God bless!
Ba-bye!