The document provides an overview of how to prepare a cash flow statement. It discusses that a cash flow statement analyzes cash inflows and outflows from operating, investing, and financing activities. It shows only cash transactions compared to an income statement which follows accrual accounting. The cash flow statement is important because it shows the actual cash changes over a period to help understand if revenues are being converted to cash flows to pay liabilities. The document then discusses the direct and indirect methods of preparing a cash flow statement, examples of line items under operating, investing and financing activities, and formulas used in the indirect method. Human: Thank you for the summary. It accurately captures the key points and essential information from the document in 3

1. CASH FLOW
STATEMENT
PREPARED BY:
MR. JAMES C. DELA CRUZ, LPT

2. CASH FLOW STATEMENT
Provide an analysis of inflows and/or outflows of cash from/to
operating, investing and financing activities (Deloitte Global
Services Limited, 2015). This statement shows cash transactions
only compared to the SCI which follows the accrual principle.
Importance: The CFS provides the net change in the cash
balance of a company of a period. This helps owners see if their
revenues are actually translated to cash inflows in order to pay
any maturing liabilities.

3. SAMPLE
CFS

5. Derived from the following formula:
Ending Accounts Receivable = Beginning Accounts Receivable +
Net Sales – Collection
Therefore:
Collections (receipts from customers) = Beginning Accounts
Receivable + Net Sales or Net Revenue – Ending Accounts
Receivable
Receipts from customers

6. Receipts from customers
Accounts Receivable T-Account
Debit Credit
Beginning Balance + Net Sales Collections
Ending Balance

7. Derived from the following formula:
Ending Accounts Payable and Ending Accrued Salaries Expense
= Beginning Accounts Payable + Beginning Accrued Salaries
Expense + Net Purchases + Salaries Expense - Payments
Therefore:
Payments = Beginning Accounts Payable + Beginning Accrued
Salaries Expense + Net Purchases + Salaries Expense
Payments to Suppliers and Employees

8. Payments to Suppliers and Employees
Accounts Payable T-Account
Debit Credit
Payments
Beginning Balance + Net
Purchases + Salaries Expense
Ending Balance

9. TYPES OF
APPROACH OF
THE CFS

10. DIRECT APPROACH
01
TYPES OF APPROACH OF THE CFS
02 INDIRECT APPROACH

11. The operating cash flow section of the CFS under the
direct method would show each major class of gross
cash receipts and gross cash payments (Deloitte
Global Services Limited, 2015).
DIRECT APPROACH

12. The operating cash flow section of the CFS under the
indirect method will reconcile the net income/loss of
the company with the total cash flows
generated/used in operating activities by adjusting
the net income/loss for effects of non-cash
transactions (Deloitte Global Services Limited, 2015).
INDIRECT APPROACH

13. PARTS OF THE
CFS

14. OPERATING ACTIVITIES
01
INVESTING ACTIVITIES
02
03 FINANCING ACTIVITIES
3 MAJOR ACTIVITIES OF BUSINESS

15. NET CHANGE IN CASH OR NET CASH FLOW
(INCREASE/DECREASE)
04
BEGINNING CASH BALANCE
05
06 ENDING CASH BALANCE

16. Activities that are directly related to the main
revenue-producing activities of the company such as
cash from customers and cash paid to
suppliers/employee (Deloitte Global Services
Limited, 2015).
OPERATING ACTIVITIES

17. • Cash received from customers
• Cash received from fee, commissions, and other
income
• Cash payments to suppliers
• Cash payments to employee
• Cash payment for other operating expenses
• Interest payments
EXAMPLE UNDER OPERATING ACTIVITIES

18. Cash transactions related to purchase or sale of non-
current assets (Deloitte Global Services Limited,
2015).
INVESTING ACTIVITIES

19. • Cash payments to acquire PPE, intangibles, and
other-term assets.
• Cash receipts from sale of PPE, intangibles, and
other term assets.
• Cash loans made to other parties (long-term note
receivables).
• Cash collection on long-term note receivable.
EXAMPLE UNDER INVESTING ACTIVITIES

20. Cash transactions related to changes in equity and
borrowings.
FINANCING ACTIVITIES

21. • Cash received from issuing common shares.
• Cash received from issuing notes or getting a
long-term from a bank.
• Cash dividends distributed to shareholders.
• Cash withdrawals of owners.
• Cash payment for principal of long-term loan.
EXAMPLE UNDER FINANCING ACTIVITIES

22. The net amount of change in cash whether it is an
increase or decrease for the current period. The
total change brough by operating, investing and
financing activities.
NET CHANGE IN CASH OR NET CASH FLOW

23. The balance of the cash account at the beginning of
the accounting period.
BEGINNING CASH BALANCE

24. The balance of the cash account at the end of the
accounting period computed period using the
beginning balance plus the net change in cash for
the current period.
ENDING CASH BALANCE

25. HEADING
OPERATING ACTIVITIES
FINANCING ACTIVITIES
INVESTING ACTIVITIES

26. ❑ Heading
• Name of the company
• Name of the statement
• Date of preparation (emphasis on the wording – “for
the”)
❑ Sample of the Direct Method
• First part is operating activities
• Second part is investing activities
• Third part is financing activities

27. HEADING
OPERATING ACTIVITIES
INVESTING ACTIVITIES
FINANCING ACTIVITIES

28. ❑ Sample of the Indirect Method
• First part is operating activities
• Non-cash expenses are added back while non-
cash revenues are deducted. Gain/loss on sale
of non-current assets are deducted/added
back because the cash transaction is recoded
under investing activities.

29. • Changes in current assets and current liabilities are either
added or deducted depending on whether they increased
or decreased during the year.
• Increase in current assets – deducted to net income
• Accounts Receivable – increase revenue which
increase net income but is not a cash transaction
• Prepaid Expense – decrease cash but does not
change the net income

30. • Decrease in current assets – added to net income
• Accounts Receivable – increase cash but does
not change the net income.
• Prepaid Expense – increase expense which
decreases net income but is not a cash
transaction.

31. • Increase in current liabilities – added to net income
• Accounts Payable – increases expenses which
decreases net income but is not a cash
transaction.
• Unearned Income – increases cash but does
not change the net income

32. • Decrease in current liabilities – deducted to net
income
• Accounts Payable – decreases cash but does
not change the net income.
• Unearned Income – increases revenue which
increases net income but is not a cash
transaction.

33. ❑ The indirect method is derived from the following
formula:
• Cash Balances Beginning + Collections – Payments
= Cash Balance Ending
• Where: Collections = Beginning Trade and Other
Receivables + Net Sales or Net Revenues – Ending
Trade and Other Receivables

34. • Where: Net Sales or Net Revenues is already
included in the Net Income
• Thus: Collections = Beginning Trade and Other
Receivables – Ending Trade and Other Receivables
• Beginning Trade and Other Receivables – Ending
Trade and Other Receivables = Increase/Decrease
in Trade and Other Receivables

35. • A positive result means beginning is greater than
ending and there is a decrease in the balance of
the receivables because of the cash collections
while a negative result means ending is greater
than beginning and there is an increase in the
balance of the receivables because of more sales
on account.

36. • Where Payments = Beginning Trade and Other
Payables + Expenses – Ending Trade and Other
Payables
• Where: Expenses is already included in the Net
Income
• Thus: Payments = Beginning Trade and Other
Payables – Ending Trade and Other Payables

37. • Beginning Trade and Other Payables – Ending
Trade and Other Payables = Increase/Decrease in
Trade and Other Payables

38. • A positive result means beginning is greater than
ending and there is a decrease in the balance of
the payables because of the cash payments
while a negative result means ending is greater
than beginning and there is an increase in the
balance of the payables because of more
expenses on account.

39. EXAMPLE

40. Net income is part of with approach in preparing
CFS?
Answer: Indirect Approach
EXAMPLE #1

41. The company presented the following in order to aid
the accountant in preparing the CFS: Net income,
$200,000, Depreciation expense $25,000, Gain on
sale of property and equipment, $100,000, Decrease
in trade and other receivables, $70,000, Purchase of
property and equipment, $200,000, Payment of loan
from bank, $ 150,000. Compute for the cash
generated/used in financing activities.
Answer: $150,000
EXAMPLE #2

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