The Cash Flow Statement

The Cash Flow Statement

(CFS)
It summarizes the cash receipts and cash
disbursements for the accounting period.
It summarizes the cash activities of the
business by classifying 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. This allows
management to assess the ability of the
business to generate cash and project
future cash flows.
Components of the CFS Classified
According to Activities
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 sales of goods;
 Royalties, fees, commissions received;
 Interests, dividends, and other income received
Components of the CFS Classified
According to Activities
Operating Activities – the cash inflows
(receipts) and the cash outflows
(payments) arising from the normal
operations of the business.
Payments of Cash
 To suppliers for services and goods acquired;
 Employees’ salaries;
 Government licenses and taxes;
 Interest expense;
 Other operating expenses
Components of the CFS Classified
According to Activities
Investing Activities – the cash inflows
(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.
Components of the CFS Classified
According to Activities
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 investments by the owner
 Proceeds of loan
Payments of Cash
 Cash withdrawal of the owner
 Payment for the principal balance of loan
 Ren Ren Merchandising started business last October.
The following are its transactions. Classify each
transaction as an Operating, Investing, or Financing
activity.

Transactions Activity
1. Additional investment in the business, Financing
₱22,200
2. Proceeds of sale of equipment, ₱15,000 Investing
3. Collection of interest, ₱9,000 Operating
4. Collection from customers, ₱315,000 Operating
5. Proceeds of bank loan, ₱200,000 Financing
6. Proceeds from sale of furniture, ₱8,000 Investing
7. Payment of operating expenses, Operating
₱145,000
8. Collection of dividends, ₱12,000 Operating
9. Cash withdrawal of owner, ₱30,000 Financing
10. Payment of interest, ₱6,000 Operating
11. Collection of rent, ₱30,000 Operating
12. Purchase of furniture, ₱31,000 Investing
Based on the classification of activities, the
following is the statement of cash flow for Ren Ren
Merchandising for the year ended
December 31, 2017:
Ren Ren Merchandising
Statement of Cash Flows
For Year Ended December 31, 2017

Cash Flows from Operating

Activities
Receipts
Collections from ₱315,800
customers
Rent Income 30,000
Dividends Income 12,000
Interest Income 9,000
Payments
Operating Expenses (145,000)
Interest Expense (6,000)
Net Cash from Operating ₱215,800
Activities
Cash Flows from Investing Activities
Receipts
Proceeds from sale of equipment ₱15,000
Proceeds from sale of furniture 8,000
Payments
For purchase of furniture (31,000)
Net Cash from Investing Activities (₱8,000)
Cash Flows from Financing Activities
Receipts
Additional investment of owner ₱22,200
Proceeds of bank loan 200,000
Payments
Cash withdrawal of owner (30,000)
Payment of bank loan (150,000)
Net Cash from Financing Activities ₱42,200
Net Increase/Decrease in Cash ₱250,000
Cash balance – January 1 200,000
Cash balance – December ₱450,000
Synthesis
The beginning balance of cash is added to
the net increase or decrease in cash
resulting from the operating, investing, and
financing activities in order to get the
ending cash balance which is the same as
the amount of the cash account presented
in the Statement of Financial Position.