FABM 2-LEARNER’S PACKET ( WEEK 5)
QUARTER 1: MELC #7-8
Demonstrate an understanding of the components and the
Content said financial report.
W
structure of a CFS that will equip him/her in the preparation of the
Standards
Performance Solve exercises and problems that require preparation of CFS.
Standards
Most Essential Learning
Competencies (MELC’S) Content Learner’s Packet
1. Discuss the components and structures of a No of days Teaching
CFS. (ABM_FABM12-lf-10) dates
2. Prepare a CFS. (ABM_FABM12-lf-11)
WRITE ANSWERS ON AN A4 BOND PAPER.
What is it?
CASH FLOW STATEMENT
Covid 19 pandemic has actually turned the world upside down, hence everyone is affected in almost
all aspects of life. It has somehow startled the business community and of course individual household too.
Relative to this, the management of inflows and outflows of cash for businesses as reported in a company’s
Cash Flow Statement were directly affected.
Cash flow statement shows cash transaction of an organization and provides an analysis of inflows
and/or outflows of its cash account from/to operating, investing and financing activities (Deloitte Global
Services Limited, 2015) It presents cash transactions only unlike the SCI which adapts the accrual method
of accounting.
Investing
activities Financing
Operating activities
activities
Cash Flow
Statement
Approaches in Preparing the Cash Flow Statement
DIRECT APPROACH – an approach in preparing the CFS that where the operating cash flow section shows
each major class of gross cash receipts and gross cash payments (Deloitte Global Service Limited, 2015).
INDIRECT APPROACH – this shows the operating cash flow section 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).
Parts of the Cash Flow Statement
1
1. Heading – includes name of the entity, title of the statement, date of preparation with emphasis on the
wording – “for the”.
2. 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 (Deloitte Global Services
Limited, 2015).
CASH INFLOW - Sale of goods or services, rental of company property, revenues
CASH OUTFLOW - Payments to suppliers, employees, taxes to the government
and other parties for operating expenses
Net income from operation
Non-cash expenses (depreciation expense)
3. Investing Activities – Cash transactions related to purchase or sale of non-current assets (Deloitte Global
Services Limited, 2015).
CASH INFLOW – sale of property, plant and equipment, intangibles and other
long-term assets.
CASH OUTFLOW - payment for property, plant and equipment, intangibles and
other long-term assets
4. Financing Activities – Cash transactions related to changes in equity and borrowings.
CASH INFLOW - additional investment from owner/ investors, loans from banks or other lenders
CASH OUTFLOW - repayment of loans, withdrawals by owners
5. 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.
6. Beginning Cash Balance – cash account balance at the beginning of the accounting period.
7. Ending Cash Balance – cash balance of the account at the end of the accounting period computed using the
beginning balance plus the net change in cash for the current period.
FORMULA:
Net change in cash 20,000.00
Add: Cash balance, beg 3,000.00
Cash balance, end 23,000.00
ILLUSTRATIONS:
A. DIRECT APPROACH
Receipts from customers is computed as follows:
2
Accounts Receivable, beginning Collections(Receipts from customers) =
Add: Net Sales therefore: Beginning Accounts Receivable + Net Sales-
Deduct: Collections Ending Accounts Receivable
Ending Accounts Receivable
Payment to Suppliers and employees is computed as follows:
Accounts Payable, beginning Payments (to Suppliers and Employees) =
Add: Beg Accrued Salaries Expense Beg. Accounts Payable+Beg. Accrued Salaries
Net Purchases Expense + Net Purchases + Salaries Expense -
Salaries Expense therefore: Ending A/P balance and Ending A.S. Expense
Deduct: Payments
Ending Accounts Payable and Ending Accrued Salaries Expense
B. INDIRECT APPROACH
Non-cash expenses are added back while non-cash revenues are deducted in the Indirect Method Approach
because CFS should only include cash transactions and net income/loss can contain non-cash transactions like
depreciation.
The amount of cash at the end should be the same amount reflected on the cash account found in the
Statement of Financial Position (SFP) or Balance Sheet.
The two approaches Direct and Indirect approaches differ in presentation in the operating activities portion
of the CFS, but will still result in the same amount of cash flow from operating activities. Investing and Financing
activities are the same in both approaches.
The Cash Flow Statement 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.
E What is more?
ACTIVITY 5.1: Answer the following:
A. Bae Maine Enterprises had the following transactions during the year:
a. Purchase of goods, 10,000. Paid cash.
b. Sale of goods, 20,000. Received cash.
c. Paid utilities 3,000.
d. Paid rent 2,500.
e. Sold equipment for cash 10,000
f. Owner withdraws investment 5,000
g. Cash balance on January 1, 2019, 6,200.
For items 1 to 3, computation.
3
1. Based on the above information, compute for the net cash flow generated by/used in operating activities.
2. Using the above given information, compute for the net cash flow generated by/used in investing activities.
3. Using the given above, compute for the net cash flow generated by/used in financing activities.
ITEMS 4 to 9: IDENTIFICATION
4. Current assets minus current liabilities.
5. An approach in preparing the CFS where the operating cash flow section shows each major class of gross cash
receipts and gross cash payment.
6. Activities centered around the actual day-to-day business transactions of a company.
7. Activities such as the issuance of long-term debt or equity investments.
8. An item that reduces reported net income, but does not require the use of cash.
9. It shows if sales from goods and services are translated to cash collections and if there is sufficient cash inflows
to pay any maturing obligations.
ITEMS 10 to 12. Classify whether the type of activity for each transaction is OPERATING ACTIVITY, FINANCING
ACTIVITY OR INVESTING ACTIVITY.
10. Payment of utilities like internet, electricity and water bills.
11. Sale of old Plant Equipment.
12. Owner’s initial investment to the business
What I have learned?
ACTIVITY 5.2: PREPARE CASH FLOW STATEMENT (15 points)
From the given information in Activity 3, prepare a Cash Flow Statement using the Direct Method Approach of the
CFS. Follow the format in the lecture notes.
ACTIVITY 3: THINK and WRITE (15 points)
Think and reflect on the activities that you did, then write your reflection and insights.
Guide questions: (15 points)
1. What have you realized as to the effect of this pandemic to one’s Statement of Cash Flow especially those in the
business sector?
2.What areas of the activity do you consider difficult and easy to answer? Why?
3. Explain your most important learnings about the Cash Flow Statement and how can you apply the knowledge in
your daily life as a student?
DIRECTION:
a. Limit your answers to FIVE (5) sentences for each question.
b. Share your own thoughts and reflections honestly.
c. Points will be deducted from answers searched through the internet.
Prepared: Checked: Noted:
MA. AURORA C. ALONZO MARICRIS G. PETELO LIBRADA A. VIDALLON
Subject Teacher ABM Subject Coordinator Curriculum and Instruction Coordinator
“Specific instructions are embedded in this packet, hence WHLP is not needed.”
