ACCOUNTING 2

Financial Statements
➢Balance Sheet (Statement of Financial Position)
➢Income Statement
➢Statement of Changes in Owner’s Equity
➢Statement of Cash Flows
Statement of Cash Flows
The Statement of Cash Flows summarizes the cash
receipts and cash disbursements for the accounting period.
It summarizes the cash activities of the business by
classifying the cash inflows (receipts) and cash outflows
(payments) into operating, investing and financing
activities.
It shows the net increase or decrease of cash in a given
period and the cash balance at the end of the period. These
allows management to assess the ability of the business to
generate cash and project future cash flows.
Statement of Cash Flows
Components classified according to Activities:

1. Operating Activities
The cash inflows(receipts) and the cash outflows(payments)
arising from the normal operations of the business
Receipts of Cash
- collections from customers for the performance of services or
sale of goods.
- royalties, fees, commissions received
- interest, dividends and other income received
Statement of Cash Flows
1. Operating Activities
Payments of Cash
- to suppliers for services and goods acquired
- employees’ salaries
- government licenses and taxes
- interest expense
- other operating expenses
2. Investing Activities – the cash inflow (receipts) and the cash
outflows (payments) from the purchase and sale of property and
equipment, investment in debt or trading securities, lending money
and collection of the principal amount of the money loaned.
Statement of Cash Flows
3. Financing Activities
- the cash inflows (receipts) and the cash outflows (payments)
from the owners and creditors of the business.
Receipts of Cash
- original and additional investment of owner
- proceeds of loan
Payments of Cash
- cash withdrawal of owner
- payment for the principal balance of loan
Sample Statement of Cash Flows
Illustration: Statement of Cash Flows
Transactions Activity
1. Additional investment in the business, P22,200 ___________
2. Proceeds of sale of equipment, P15,000 ___________
3. Collection of interest, P9,000 ___________
4. Collection from customers, P315,800 ___________
5. Proceeds of bank loan, P200,000 ___________
6. Proceeds from sale of furniture, P8,000 ___________
7. Payment of operating expenses, P145,000 ___________
8. Cash withdrawal of owners, P30,000 ___________
9. Payment of bank loan, P150,000 ___________
10. Collection of rent, P30,000 ___________
Exercise:
Write OP if the cash flow activity is operating
INV if the cash flow activity is Investing
FIN if the cash flow activity is Financing
NOT if the item is not cash flow activity
__ 1. Proceeds from sale of building
___ 2. Payment of principal loan to BPI
__ 3. Cash collection from customers
___4. Cash sale of company assets
__ 5. Payment of accounts payable
__ 6. Depreciation expense
Exercise:
__ 7. Additional investment of owner
__ 8. Collection of accounts receivable
__ 9. Provision of bad debts
__10. Cash received from rent of building
__ 11. Payment of government taxes
__ 12. Interest income from bank account
__ 13. Proceeds from sale of equipment
__14. Payment of interest of bank loan
__ 15. cash withdrawal of owner