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Cash Flow Statement

This document provides an overview of cash flow statements, including their purpose and key components. It defines a cash flow statement and breaks it down into operating, investing, and financing activities. It also provides examples of transactions that would be included in each section and shows a sample cash flow statement using the direct method. Finally, it includes sample problems related to constructing and analyzing a cash flow statement.

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JENILINE MIZAL
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72 views4 pages

Cash Flow Statement

This document provides an overview of cash flow statements, including their purpose and key components. It defines a cash flow statement and breaks it down into operating, investing, and financing activities. It also provides examples of transactions that would be included in each section and shows a sample cash flow statement using the direct method. Finally, it includes sample problems related to constructing and analyzing a cash flow statement.

Uploaded by

JENILINE MIZAL
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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CASH FLOW STATEMENT

LEARNING OUTCOMES
1. Recognize and explain the various activities in the cash flow statement; 2. Categorize
the various business transactions related to activities in the cash flow statement; and
3. Construct a cash flow statement.

STATEMENT OF CASH FLOW


A cash flow statement, also known as the statement of cash flows or funds flow
statement, is a financial statement that shows how changes in balance sheet accounts
and income affect cash and cash equivalents, and breaks the analysis down to
operating, investing, and financing activities.

The cash flow statement is concerned with flow of cash in and cash out of the business.
As an analytical tool the statement of cash flows is useful in determining the ability of the
business to pay bills.

The cash flow statement is intended to:


1. Provide information on a firm’s liquidity and solvency and its ability to change cash
flows in future circumstances.
2. Provide additional information for evaluating changes in assts, liabilities, and equity;
3. Improve the comparability of different firms’ operating performance by eliminating the
effects of different accounting methods;
4. Indicate the amount, timing, and probability of future cash flows.

OPERATING ACTIVITIES (CURRENT ASSETS & CURRENT LIABILITIES)


Operating activities include the production, sales and delivery of the company’s product
as well as collecting payment from its customers. This could include purchasing raw
materials, building inventory, advertising, and shipping the product. Operating cash flows
include:

1. Receipts from the sale of goods or services


2. Receipts for the sale of loans, debt or equity instruments in a trading portfolio
3. Interest received on loans

INVESTING ACTIVITIES (LONG-TERM LIABILITIES)


Examples of investing activities are
1. Purchase of sale of an asset (assets can be land, building, equipment, marketable
securities, etc.)
2. Loans made to suppliers or received from customers
3. Payments made to mergers and acquisitions

Financial Management
Merryfaith Ariane B.
Lopez Instructor
FINANCING ACTIVITIES (OWNER’S EQUITY)
Financing activities include the inflow of cash from investors such as banks and
shareholders, as well as the outflow of cash to shareholders as dividends as the
company generates income. Other activities may also be included as follows:

1. Proceeds from issuing short-term or long-term debt


2. Payments of dividends
3. Payments for repurchase of company shares

PREPARATION METHOD: DIRECT METHOD


Sample cash flow statement using the direct methods:

Cash flows from (used in) operating activities


Cash receipts from customers 29,500
Cash paid to suppliers and employees (12,000)
Cash generated from operations (sum) 17,500
Interest paid (2,000)
Income taxes paid (3,000)
Net cash flows from operating activities 12,500

Cash flows from (used in) investing activities


Proceed from the sale of equipment 17,500
Dividends received 13,000
Net cash flows from investing activities 30,500

Cash flows from (used in) financing activities


Dividends paid (25,000)
Net cash flows used in financing activities (25,000)

Net increase in cash and cash equivalents 18,000 Cash and cash
equivalents, beginning 10,000 Cash and cash equivalents, end 28,500

SAMPLE PROBLEMS
1. At the beginning of the year, Gonzales Corporation had ₱100,000 in cash. The
company undertook a major expansion during this same year. Looking at its
statement of cash flows, you see that the net cash provided by its operations was
₱300,000 and the company’s investing activities required cash expenditures of
₱800,000. The company’s cash position at the end of the year was ₱50,000. What
was the net cash provided by the company’s financing activities?

Financial Management
Merryfaith Ariane B.
Lopez Instructor
2. Following is a list of typical transactions. Identify whether they are Operating
Activities, Investing Activities or Financing Activities.
a. Purchased a patent
b. Net income
c. Sold long-term investments
d. Purchased a building
e. Issued bonds
f. Paid dividends
g. Recorded depreciation expense for the year

3. If a loss of ₱15,000 is incurred in selling (for cash) office equipment having a book
value of ₱50,000, the total amount reported in the cash flows of investing activities
section of the statement of cash flows is:
a. 22,000
b. 78,000
c. 35,000
d. 15,000

4. On the statement of cash flows, the cash flows from operating activities section
would include
a. Receipts from interest on short-term notes receivable
b. Receipts from the issuance of capital stock
c. Payments for the acquisition of investments
d. Payments for cash dividends

Financial Management
Merryfaith Ariane B.
Lopez Instructor

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