Cash Flow Statement

There are two ways to prepare a cash flow statement: the direct method and the indirect method.

DIRECT METHOD INDIRECT METHOD

DIRECT: - Cash from operating activities
Cash Receipts: (Inflow) - Cash from investing activities
- Cash from ... - Cash from financing activities
Cash Disbursements: (Outflow) Note:
- Cash to …. Here, assets are deducted while liabilities and equity are
added.
Variance Analysis
- The study of deviations of actual behavior versus forecasted or planned behavior in budgeting or management
accounting.
- Comparison of the current and previous year.
Horizontal Analysis
- Left to right (in a row)
- Horizontal analysis is performed when one compares the Current Total Assets to that of Previous. So the
directional movement of the analysis is horizontal or between two columns.
- Formula: Current – Previous = Difference in Amount ÷ Previous = Difference in Percentage.
𝐶−𝑃 10,000−8,000
- 𝑃
=𝐶 8,000
= 0.25 (25%)

Vertical Analysis
- Top to bottom (in a column)
- Vertical analysis is performed when one determines the percentage of cash in relation to the company’s total
assets. Notice that the direction of the analysis is vertical. Cash and total assets are on the same column.
Hence, the direction of the analysis is vertical.
For the Balance Sheet
- Total Assets is the base, Total Liabilities + Equity is the base
Example:

ASSETS LIABILITIES + EQUITY

Cash 10 ― 6.67% Accounts Payable 50 ― 33.33%
Accounts Receivable 5 ― 3.33%
Inventory 20 ― 13.33% Equity 90 ― 60%
Prepaid Expenses 15 ― 10% Net Income 10 ― 6.67%
Fixed Assets 100 ― 66.67% Total Equity 100 ― 66.67%
Total Assets: 150 ― 100% Total Liability + Equity: 150 ― 100%

For the Income Statement

- Net Sales or Revenue is the base.
Net Sales 100 ------ 100%
Expenses:
Travel 25 ------ 25%
Supplies 5 ------ 5%
Food 50 ------ 50%
80 ------ 80%
Net Profit 20 ----- 20%
Trend Percentages
- Current year amount – Base Year Amount = Change in Amount ÷ Base Year Amount = Percentage Change
𝑪−𝑷𝑩 𝟖,𝟎𝟎𝟎−𝟓,𝟎𝟎𝟎
𝑩𝒂𝒔𝒆
𝒙 𝟏𝟎𝟎 → 𝟓,𝟎𝟎𝟎
𝒙 𝟏𝟎𝟎 + (𝟏𝟎𝟎) = 𝟏𝟔𝟎%

Example:
2017 (Base Year) 2018 2019 2020 2021
CASH 5,000 8,000 6,000 7,000 10,000
100% 160% 140% 120% 200%