Cash Flow Statement

What is a Cash Flow Statement?

a. A specific list of the manager’s expenses.

b. A document that lists all the transactions of
the business.
c. A list that shows the money goes out of but
not in a
business.
d. A report that shows how money moves
through an
 Cash Flow Statement

Learning Competency:
Discuss the components and
structure of a Cash Flow Statement
(CFS) and its preparation.
Specific Objectives:
1. Define Cash Flow Satement
2.Discuss the components and
structure of a CFS
After completing the module on the Statement
of Financial Position (SFP), Statement of
Comprehensive Income (SCI), Statement of
Changes in Equity (SCE), we
will now look into another financial statement
that describes the movement of cash in a
company, the Cash Flow Statement
Cash is one of the most important
resource of an organization. Without
cash, it would be very hard for a
business to survive, because cash is
essential for its operation and growth.
There are many ways in which a business earns
and spends its cash.
1. A business earns cash through: (INFLOWS)
• Sales of products or service
• Loan or credit card proceeds
• Asset sales
• Owner investments
2. A business spends cash through:
(OUTFLOWS)
• Business expenditures
•Owner withdrawals
• Loan or credit card principal payments
•Asset purchases
These inflows and outflows are classified into three
main group of business activity

A. Operating Activities

B. Investing Activities

C. Financing Activities
A. Operating Activities
These are transactions that relate to how a
business earns money on a day-to-day basis.
Primarily, cash inflows are made every time
customers buy their products or avail of their
services; cash outflows are made when the
business pay employees, utilities, suppliers, taxes,
and other sales and business expenditure activities
B. Investing Activities

Investing activities come from the sale

(receipts) and purchase (payments) of non-
current assets, businesses, and securities used
for the maintenance of and additions to
support/expand the company’s operation and
competitiveness in the future
C. Financing Activities
-the cash inflows (receipts) and outflows
(payments) from financing activities come
from entering into loans to avail more cash or
to pay long-term debts; owner’s additional
investments and withdrawals; issuing stocks
and paying out dividends and similar
Transactions
 Naturally, it is desirable for a business to be generating
a big portion of its cash inflow from operating activities,
as this would mean positive sign in terms of growth in
sale of goods and services. Without which, investing and
financing for the growth of the business will not be
feasible.
Notice that not all transactions involve cash, like making
a sale or purchase on account (no cash
receipts/payments made at the time of the transaction),
and thus, have no impact on cash flow. To analyze a
company’s cash flow, the focus will be on transactions
1. Payment of Bank Loan 6. Owner’s Drawings Operating
2. Collection from Customers 7.Payment of Accounts’ payable
3. Purchase of Supplies 8. Estimated Doubtful Accounts
4. Proceeds from Sale of truck 9. Payment of Tax
5. Payment of Worker’s salaries
 Aside from learning how to classify transactions into
the three main components of a business activity, you
have to understand that each transaction also brings
corresponding effects on these three main business
components. That is why, you also have to analyze the
behavior of each transaction.
Remember the normal balances of accounts discussed in
FABM1? Cash is an asset and the normal balance for
assets is debit. Therefore, transactions that debit cash
adds to the company’s cash balance while transactions
where cash is credited would mean making payments
and decreases cash
Direct Approach
Prepare A Cash Flows Statement – ABC Merchandise
Cash Sales - 25,000
Collection of Receivables – 15,000
Refund to Customers - 500
Refund from Suppliers - 1000
Payment to Suppliers – 4,000
Payment of Expenses - 5,000
Supplies Bought - 500
Cash Purchases of Merchandise - 600
Freight-In - 500
Acquisition of Equipment - 5,000
Initial Investment/Capital – 4,000
Drawings/Withdrawals – 3,000
Cash Beginning – 10,000
Cash From Operating Activities
The operating activities on the CFS include any sources and uses of cash
from business activities. In other words, it reflects how much cash is
generated from a company’s products or services.
These operating activities might include:
•Receipts from sales of goods and services
•Interest payments
•Income tax payments
•Payments made to suppliers of goods and services used in production
•Salary and wage payments to employees
•Rent payments
•Any other type of operating expenses
Cash From Investing Activities
Investing activities include any sources and uses of cash from a
company’s investments. Purchases or sales of assets, loans made
to vendors or received from customers, or any payments related to
mergers and acquisitions (M&A) are included in this category. In
short, changes in equipment, assets, or investments relate to cash
from investing.
Cash From Financing Activities

Cash from financing activities includes the sources of cash

from investors and banks, as well as the way cash is paid to
shareholders. This includes any dividends, payments for
stock repurchases, and repayment of debt principal (loans)
that are made by the company.
How to Prepare a Cash Flow Statement
1 . Gather Financial Statements
Before you begin, collect the necessary financial statements:
•Income statement: Provides information on revenues, expenses, and net
income.
•Balance sheet: Shows the company’s assets, liabilities, and equity at the
beginning and end of the period.

2. Determine the Reporting Period

Identify the period for which you are preparing the cash flow statement.
This could be monthly, quarterly, or annually.
3. Choose the Method
Decide whether you will use the direct method or the indirect
method to prepare the CFS.
•Direct Method: The direct method involves listing all cash
receipts and payments during the reporting period.
•Indirect Method: The indirect method starts with net
income and adjusts for changes in non-cash transactions.
4. Prepare the Statement
Cash Flow from Operating Activities
Direct Method:
1.List cash receipts: Include cash collected from customers.
2.List cash payments: Include cash paid to suppliers, employees, interest paid,
and income taxes paid.
3.Calculate net cash flow from operating activities: Subtract total cash payments
from total cash receipts.
Indirect Method:
1.Start with net income: Obtain this from the income statement.
2.Adjust for non-cash items: Add back depreciation and
amortization.
3.Adjust for changes in working capital: Account for changes in
accounts receivable, inventory, accounts payable, and other
working capital accounts.
4.Calculate net cash flow from operating activities: Combine the
adjusted net income with changes in working capital.
Cash Flow from Investing Activities
1.Identify cash transactions for investments: Include cash spent on purchasing
fixed assets, cash received from selling assets, and cash spent on or received
from investing in securities.
2.Calculate net cash flow from investing activities: Subtract cash payments for
investments from cash receipts from sales of investments.

Cash Flow from Financing Activities

1.Identify cash transactions for financing: Include cash received from issuing
stock or debt and cash spent on repaying debt or buying back stock.
2.Calculate net cash flow from financing activities: Subtract cash payments for
financing activities from cash receipts from financing activities.
5.Combine All Sections
Add the net cash flows from operating, investing, and financing activities to
determine the overall change in cash and cash equivalents for the period.

6.Reconcile with Beginning Cash

Add the change in cash to the beginning cash balance to arrive at the
ending cash balance, ensuring it matches the cash balance reported on the
balance sheet.
What Is the Cash Flow Formula?
There are two methods of calculating cash flow: the direct method
and the indirect method.

Direct Cash Flow Method

The direct method adds up all of the cash payments and receipts,
including cash paid to suppliers, cash receipts from customers, and
cash paid out in salaries. This method of CFS is
easier for very small businesses that use the cash basis accounting
method.
Indirect Cash Flow Method

With the indirect method, cash flow is calculated by adjusting net income by
adding or subtracting differences resulting from non-cash transactions. Non-
cash items show up in the changes to a company’s assets and liabilities on
the balance sheet from one period to the next. Therefore, the accountant will
identify any increases and decreases to asset and liability accounts that need
to be added back to or removed from the net income figure, in order to
identify an accurate cash inflow or outflow.
Prepare A Cash Flow Statement – XYZ Marketing
For the month of October 30, 2023
Collection of Receivables – 15,000
Refund to Customers - 500
Refund from Suppliers - 1000
Cash Payment of Interest – 5,000
Rent Expense – 10,000
Supplies Expense – 15,000
Utilities Expense - 5,000
Cash Sales - 70,000
Cash Purchases of Merchandise - 800
Sale of Equipment – 20,000
Payment of Dividends -
Freight-In - 1,000
Acquisition of Equipment - 10,000
Initial Investment/Capital – 9,000
Drawings/Withdrawals – 2,000
Cash Beginning – 20,000