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LESSON 4 FABM 2 (1).pdf

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LESSON 4 FABM 2 (1).pdf

  1. 1. CASH FLOW STATEMENT PREPARED BY: MR. JAMES C. DELA CRUZ, LPT
  2. 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. 3. SAMPLE CFS
  4. 4. 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
  5. 5. Receipts from customers Accounts Receivable T-Account Debit Credit Beginning Balance + Net Sales Collections Ending Balance
  6. 6. 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
  7. 7. Payments to Suppliers and Employees Accounts Payable T-Account Debit Credit Payments Beginning Balance + Net Purchases + Salaries Expense Ending Balance
  8. 8. TYPES OF APPROACH OF THE CFS
  9. 9. DIRECT APPROACH 01 TYPES OF APPROACH OF THE CFS 02 INDIRECT APPROACH
  10. 10. 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
  11. 11. 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
  12. 12. PARTS OF THE CFS
  13. 13. OPERATING ACTIVITIES 01 INVESTING ACTIVITIES 02 03 FINANCING ACTIVITIES 3 MAJOR ACTIVITIES OF BUSINESS
  14. 14. NET CHANGE IN CASH OR NET CASH FLOW (INCREASE/DECREASE) 04 BEGINNING CASH BALANCE 05 06 ENDING CASH BALANCE
  15. 15. 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
  16. 16. • 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
  17. 17. Cash transactions related to purchase or sale of non- current assets (Deloitte Global Services Limited, 2015). INVESTING ACTIVITIES
  18. 18. • 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
  19. 19. Cash transactions related to changes in equity and borrowings. FINANCING ACTIVITIES
  20. 20. • 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
  21. 21. 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
  22. 22. The balance of the cash account at the beginning of the accounting period. BEGINNING CASH BALANCE
  23. 23. 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
  24. 24. HEADING OPERATING ACTIVITIES FINANCING ACTIVITIES INVESTING ACTIVITIES
  25. 25. ❑ 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
  26. 26. HEADING OPERATING ACTIVITIES INVESTING ACTIVITIES FINANCING ACTIVITIES
  27. 27. ❑ 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.
  28. 28. • 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
  29. 29. • 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.
  30. 30. • 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
  31. 31. • 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.
  32. 32. ❑ 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
  33. 33. • 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
  34. 34. • 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.
  35. 35. • 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
  36. 36. • Beginning Trade and Other Payables – Ending Trade and Other Payables = Increase/Decrease in Trade and Other Payables
  37. 37. • 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.
  38. 38. EXAMPLE
  39. 39. Net income is part of with approach in preparing CFS? Answer: Indirect Approach EXAMPLE #1
  40. 40. 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
  41. 41. THANK YOU FOR LISTENING!!!

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