THE CASH FLOW

STATEMENT
Definition
Cash Flow Statement – reports
the cash receipts and cash
disbursements classified
according to the entity’s major
activities: operating, investing
and financing.
• It reports where cash come
from and how it was spent.
• In other words, it answers
the questions: Where does
cash come from? and
Where does cash go?
Cash and cash equivalents
• On a statement of cash flow, cash
has a broader meaning than just
cash on hand and cash in bank. It
include cash equivalents that can
be converted into cash wit a little
delay.
Purposes of Cash Flow
1. To predict future cash flows.
2. To evaluate management decisions.
3. To determine the company’s ability to
pay dividends to stockholders and
interest and principal to creditors.
4. To show the relationship of net income
to changes in the business’ cash.
Inputs to Cash Flow Preparation

1.Comparative Balance
Sheet
2.Statement of Retained
Earnings
3.Income Statement
Cash Flow Statement Structure
Name of the Company
Name of the Statement
Period

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Cash Flow Structure . . .

Net (decrease) increase in cash

Cash balance, Dec 31, 20X1
Cash balance, Dec 31, 20X2
Operating activities
• Operating activities create revenues and
expenses.
• The statement of cash flows reports the
impacts of revenues and expenses on cash.
• The largest cash inflow from operations is the
collection of cash from customers.
• Smaller inflows are receipts of interest on
loans and dividends on stock investments.
Operating activities, cont’d
• The operating cash outflows include
payment to suppliers and to employees
and payments for interest and taxes.
• Cash flow from operating activities
require analysis of each revenue and
expense on the income statement along
with the related current asset or current
liability.
Example of Cash flow from Operating Activities

Cash flow from operating activities:

Receipts:
Cash collections from customers P 271
Interest received from 10
notes receivable
Dividends received on 9
investments in stock
--------
Total cash receipts P290
Example of Cash flow from operating
activities, cont’d
Payments:
To suppliers P(133)
To employees ( 58)
For interest ( 16)
For income tax ( 15)
-----------
Total cash payments (P222)
--------------
Net cash inflow from operating 68
activities
Formula
Receipts from customers
+ decrease in AR
= Sales revenue
- increase in AR

Receipts of interest
+ decrease in interest rec.
= Interest revenue
- increase in interest rec.
 Formula
Receipts of Dividends
+ dec. in dividends rec.
= Dividends revenue
- inc. in dividends rec.
 Formula
Payments to suppliers
+ inc. in inventories + dec. in AP
= CGS
- dec. in inventories - inc. in AP

+ inc. in prepaids + dec. in accrued liab.

= operating exp.
- dec. in prepaids - inc. in accrued liab.
Formula

Payments to employees
+ dec. in salary/wage payable
= salary(wage)
expenses - inc. in salary/wage payable
 Formula
Payments for interest
+ dec in interest payable
= interest expense
- inc in interest payable

Payments for income tax

+ dec in income tax payable
= income tax exp
- inc in income tax payable
Cash flow from investing activities
• Increase and decrease the long-term
assets available to the business.
• A purchase or sale of plant assets.
• Making a loan
• Collection of loan
Investing activities require analysis of
the long-term asset accounts.
 Example of Cash flow from
investing activities
Cash flow from investing activities:
Acquisition of plant assets P(306)
Loan to another company ( 11)
Proceeds from sale of 62
plant assets ----------
Net cash flow from investing P(255)
activities
Financing Activities
• Obtain the cash needed to launch
and sustain the business.
• Includes issuing stocks,
borrowing money by issuing
notes and bonds payable, buying
or selling treasury stocks and
paying dividends to stockholders.
Financing . . .
• Payment to the creditors include
principal payments only. The
payment of interest is an operating
activity.
Financing activities require analysis of
the long-term liability accounts and
the owners’ equity accounts.
 Example of cash flow from
financing activities
Cash flow from financing activities:
Proceeds from issuance of P101
common stocks
Proceeds from issuance of 94
LT notes payable
Payment of long-term NP (11)
Payment of dividends (17)
---------
Net cash from financing activities P167
 Exercise
1. Identify which of the following transactions
fall under operating, investing and financing
activities:
a. Cash received from customers
b. Cash paid to suppliers
c. Cash paid to employees
d. Cash paid to purchase equipment (company
does not sell equipment)
 Exercise, continued
e. Cash received from sale of furniture
(company’s main line of business is not related
to furniture)
f. Depreciation expense
g. Sale of goods on credit
h. Purchase of goods on credit
i. Cash received from getting a loan from a bank
j. Cash paid to owners
 Exercise, continued
• 2. Juana’s sari-sari store had the following transactions
during the year:
a. Purchase of goods. Paid cash. 100,000
b. Sale of goods. Received cash. 150,000
c. Paid utilities 30,000
d. Paid rent 10,000
e. Sold equipment for cash 100,000
f. Owner withdraws investment 10,000
Compute for the net cash flow generated by/used in
operating activities
 Exercise, continued
3. Using the given above (No. 2), compute for the net
cash flow generated by/used in investing activities.
4. Using the given above, compute for the net cash flow
generated by/used in financing activities.
5. Using the given above, prepare a Cash Flow
Statement.
 Exercise, continued
6. Prepare the Cash Flow Statement of Teresa’s
Delivery Services using the following:
•Net Income 500,000
•Depreciation expense 70,000
•Gain on sale of property and equipment 10,000
•Increase in trade and other receivables – net 250,000
•Increase in trade and other payables 150,000
 Exercise, continued
• Amount of proceeds from sale of property and
• Equipment 50,000
• Paid loan from a bank 100,000
• Cash, January 1, 2016 70,000