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Cash Flow Statement (CFS)

The cash flow statement provides an analysis of cash inflows and outflows from operating, investing, and financing activities. It is important because it shows the net change in a company's cash balance and whether cash from operations can cover liabilities. There are two approaches to the cash flow statement - the direct approach shows each cash receipt and payment, while the indirect approach reconciles net income to operating cash flows by adjusting for non-cash items.

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490 views

Cash Flow Statement (CFS)

The cash flow statement provides an analysis of cash inflows and outflows from operating, investing, and financing activities. It is important because it shows the net change in a company's cash balance and whether cash from operations can cover liabilities. There are two approaches to the cash flow statement - the direct approach shows each cash receipt and payment, while the indirect approach reconciles net income to operating cash flows by adjusting for non-cash items.

Uploaded by

Khay
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 PPTX, PDF, TXT or read online on Scribd
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CASH FLOW STATEMENT

(CFS)
1. Reflect on the importance of preparing the
CFS.
2. Reflect on the difference of the two
approaches (direct and indirect)
CASH FLOW STATEMENT
• - provides an analysis of inflow and/or outflows
of cash from/to operating, investing, and
financing activities.

• IMPORTANCE: provides the net change in the


cash balance of a company for a period. This
helps owners see if their revenues are actually
translated to cash collections or if they have
enough cash inflows in order to pay any
maturing liabilities.
Differentiate Direct and Indirect
Approach:
• Direct Approach- The • Indirect Approach- the
operating cash flow operating cash flow
section of the CFS section will reconcile the
would show each net income/loss of the
company with the total
major class of gross
cash flows
cash receipts and generated/used in
gross cash payments. operating activities by
adjusting the net
income/loss for effects
of non-cash transactions.
PARTS OF CASH FLOW STATEMENT

• Operating Activities- activities that are directly


related to the main revenue-producing activities
of the company such as cash from customers
and cash paid to suppliers/employees.
• Investing Activities- cash transactions related
to purchase or sale of non-current assets.
• Financing Activities- cash transactions related
to changes in equity and borrowings.
PARTS OF CASH FLOW STATEMENT

• Net change in cash or net cash flow


(increase/decrease)- the net amount of
change in cash whether it is an increase or
decrease for the current period. The total
change brought by operating, investing
and financing activities.
• Beginning Cash Balance- the balance of
the cash account at the beginning of the
accounting period.
PARTS OF CASH FLOW STATEMENT

• Ending Cash Balance- the balance of the


cash account at the end of the accounting
period computed using the beginning
balance plus the net change in cash for the
current period.
DIRECT METHOD

LEARNING IS FUN COMPANY


Cash Flow Statement
For the year ended December 31, 2016

Cash flows from Operating Activities


Receipts from Customers P 1,000,000
Payments to Suppliers and Employees - 700,000.00
Net Cash generated by Operating Activities

Cash flows from Investing Activities


Purchases of Property and Equipment - 150,000.00
Net Cash used in Investing Activities

Cash flows from Financing Activities


Long term loan from a bank 300,000.00
Additional investment from owner 100,000.00
Withdrawals by owner - 80,000.00
Net cash generated by Financing Activities 320,000.00
Net increase in cash and cash equivalents 470,000.00
Cash, January 1, 2016 100,000.00
Cash, December 31, 2016 580,000.00
INDIRECT METHOD
LEARNING IS FUN COMPANY
Cash Flow Statement
For the year ended December 31, 2016

Cash flows from Operating Activities


Net Income P250,000
Add back: Depreciation 20,000.00
Loss on sale property and equip. 10,000.00
280,000.00
(Increase/Decrease in Trade and Other Receivables-Net - 40,000.00
(Increase/Decrease in Trade and Other Payables 60,000.00
Net cash generated by Operating Activities 300,000.00

Cash flows from Investing Activities


Purchases of Property and Equipment - 150,000.00
30,000.00
Net Cash used in Investing Activities - 120,000.00

Cash flows from Financing Activities


Long term loan from a bank 300,000.00
Additional investment from owner 100,000.00
Withdrawals by owner - 80,000.00
Net cash generated by Financing Activities 320,000.00
Net increase in cash and cash equivalents 500,000.00
Cash, January 1, 2016 100,000.00
Cash, December 31, 2016 P600,000

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