Before going over this module, the learner must answer the PRE-TEST in order for the teacher

to assess Recognition of Prior Learning (RPL) and pin point specific topics that need emphasis
during the discussion.

PRE-TEST

Prepare the Statement of Changes in Owners’ Equity of Diza Diaz Company for the year ended December 31,
2019.

 Beginning Balance P 250,000

 Withdrawals P 14,000
 Net Income P 35,000

Module 5 – Statement of Cash Flows

Learning Outcome(s):

At the end of the lesson, the learner is able to:

1. Discuss the components and structures of a CFS

2. Prepare a CFS

Cash is an important asset. It is an account affected by many transactions. The debit

and credit sides of the cash account generally represent cash receipts and cash
disbursements, respectively.

What Is a Cash Flow Statement?

A cash flow statement is a financial statement that provides aggregate data regarding all cash inflows a
company receives from its on-going operations and external investment sources. It also includes all cash
outflows that pay for business activities and investments during a given period.

A company's financial statements offer investors and analysts a portrait of all the transactions that go through
the business, where every transaction contributes to its success. The cash flow statement is believed to be the
most intuitive of all the financial statements because it follows the cash made by the business in three main
ways—through operations, investment, and financing. The sum of these three segments is called net cash
flow.

Cash Flow Statement Components

The cash flow statement components provide a detailed view of cash flow from operations, investing, and
financing:

 Cash Flow from Operating Activities

The net amount of cash coming in or leaving from the day to day business operations of an entity is
called Cash Flow From Operations. Basically it is the operating income plus non-cash items such as
depreciation added. Since accounting profits are reduced by non-cash items (i.e. depreciation and
amortization) they must be added back to accounting profits to calculate cash flow.
Cash flow from operations is an important measurement because it tells the analyst about the viability of an
entities current business plan and operations. In the long run, cash flow from operations must be cash inflows
in order for an entity to be solvent and provide for the normal outflows from investing and finance activities.
https://www.arborinvestmentplanner.com/cash-flow-statement-analysis-purpose-components-
and-format/

The following are examples of cash flow transactions reported under Operating Activities:

a. Cash received from customers (cash receipts from sale of goods and rendering of services)
b. Cash received from fees, commissions, and other income
c. Cash payments to suppliers
d. Cash payments to employees
e. Cash payments for other operating expenses
f. Interest payments

 Cash Flow from Investing Activities

Cash flow from investing activities would include the outflow of cash for long term assets such as land,
buildings, equipment, etc., and the inflows from the sale of assets, businesses, securities, etc. Most cash flow
investing activities are cash out flows because most entities make long term investments for operations and
future growth.
The following are examples of cash flow transactions reported under Investing Activities:
a. Cash payments to acquire property, plant, and equipment, intangibles and other long-term assets.
b. Cash receipts from sale of property, plant, and equipment, intangibles and other long-term assets.
c. Cash loans made to other parties (long-term note receivable).
d. Cash collection on long-term note receivable.

 Cash Flow from Finance Activities

Cash flow from finance activities is the cash out flow to the entities investors (i.e. interest to bondholders) and
shareholders (i.e. dividends and stock buybacks) and cash inflows from sales of bonds or issuance of stock
equity. Most cash flow finance activities are cash outflows since most entities only issue bonds and stocks
occasionally.

The following are examples of cash flow transactions reported under Financing Activities:
a. Cash received from issuing common shares (or capital contribution from owners).
b. Cash received from issuing notes or getting a long-term loan from bank.
c. Cash dividends distributed to shareholders.
d. Cash withdrawals of owners.
e. Cash payment for principal of long-term loan.

References:
https://www.investopedia.com/terms/c/cashflowstatement.asp
https://www.youtube.com/watch?v=oPGgKclWg3M
FUNDAMENTAL of ACCOUNTANCY, BUSINESS and MANAGEMENT 2 Book by Dani Rose C. Salazar. 1 st Edition

KEYPOINTS

 Statement of Cash flows is the financial statement that explains the net change in cash for the year.
 The Statement of Cash Flows summarized the cash transactions that occurred during the year.
 Three components of Cash Flow Statement: Cash Flow from Operating Activities, Cash
Flow from Investing Activities, & Cash Flow from Finance Activities.

ABC Company
Statement of Cash Flows
For the year ended December 31, 2oX1

Cash flow from operating activities

Receipts from customers P119, 700

Payments to suppliers (38,700)
Payments to employees (35,000)
Rent payments (25,000)
Utility payments (7,890)
Internet payments (7,500)

Net cash flow provided by operating activities P 5,610

Cash flow from investing activities

 Acquisition of computers (60,000)

Net cash flow used in investing activities (P60,000)

Cash flow from financing activities

Additional contribution from owner 75,000

Owner’s drawings (4,000)
Proceeds from bank borrowing 150,000
Loan payment (18,760)

Net cash flow provided by financing activities P202,240

Net change in cash P147,850

Cash and cash equivalents, January 1, 20X1 120,000

Cash and cash equivalents, December 31, 20X1 P267,850

Example of Statement of Cash Flows

Activity

Choose your answer below.

A. Cash Flow from Operating Activities

B. Cash Flow from Investing Activities
C. Cash Flow from Finance Activities

1. Cash received from issuing notes or getting a long-term loan from bank.
2. Cash dividends distributed to shareholders.
3. Cash withdrawals of owners.
4. Cash received from fees, commissions, and other income
5. Cash payments to suppliers
6. Cash payments to employees
7. Cash payments to acquire property, plant, and equipment, intangibles and other long-term assets.
8. Cash receipts from sale of property, plant, and equipment, intangibles and other long-term assets.
9. Cash loans made to other parties (long-term note receivable).
10. Cash collection on long-term note receivable.

POST-TEST

PROBLEM: DEF Company, prepare the Statement of Cash Flows for the year ended December
31, 2019

Debit Credit
Cash from cash sales 6,000
Collection of Accounts Receivable 20,000
Cash from cash sales 1,500
Collection of Accounts Receivable 30,000
Cash from cash sales 5,600
Collection of Accounts Receivable 13,000
Collection of Accounts Receivable 49,600
125,700
Payment to suppliers 22,500
Payment to suppliers 19,700
42,200

Payment to employees 55,000

Rent payments 25,000
Payment of utility bills 9,890
Interest payment 7,500
6/01 Acquisition of computers 60,000
Additional contribution from owner 75,000
Owner’s drawings 4,000
Proceeds from bank borrowing 150,000
Loan payment 21,760