Fundamentals of

Accountancy, Business,
and Management 2
Quarter 1 – Module 4 :
Statement of Cash Flow
Senior High School – Fundamentals of Accountancy, Business, and Management 2
Alternative Delivery Mode
Quarter 1 – Module 5: Statement of Cash Flow
First Edition, 2020

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 Fundamentals of
Accountancy, Business,
and Management 2
Quarter 1 – Module 4 :
Statement of Cash Flow
Introductory Message
For the facilitator:

Welcome to the Fundamentals of Accountancy, Business, and Management 2

Alternative Delivery Mode (ADM) Module on Statement of Cash Flow!

This module was collaboratively designed, developed and reviewed by educators both
from public and private institutions to assist you, the teacher or facilitator in helping
the learners meet the standards set by the K to 12 Curriculum while overcoming
their personal, social, and economic constraints in schooling.

This learning resource hopes to engage the learners into guided and independent
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Notes to the Teacher

This contains helpful tips or strategies that
will help you in guiding the learners.

As a facilitator you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to manage
their own learning. Furthermore, you are expected to encourage and assist the
learners as they do the tasks included in the module.

2
For the learner:

Welcome to the Fundamentals of Accountancy, Business, and Management 2

Alternative Delivery Mode (ADM) Module on Statement of Cash Flow!

The hand is one of the most symbolized part of the human body. It is often used to
depict skill, action and purpose. Through our hands we may learn, create and
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This module was designed to provide you with fun and meaningful opportunities for
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This module has the following parts and corresponding icons:

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competencies you are expected to learn in the
module.

What I Know This part includes an activity that aims to

check what you already know about the
lesson to take. If you get all the answers
correct (100%), you may decide to skip this
module.

What’s In This is a brief drill or review to help you link

the current lesson with the previous one.

What’s New In this portion, the new lesson will be

introduced to you in various ways such as a
story, a song, a poem, a problem opener, an
activity or a situation.

What is It This section provides a brief discussion of the

lesson. This aims to help you discover and
understand new concepts and skills.

What’s More This comprises activities for independent

practice to solidify your understanding and
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answers to the exercises using the Answer
Key at the end of the module.

What I Have Learned This includes questions or blank

sentence/paragraph to be filled in to process
what you learned from the lesson.

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 What I Can Do This section provides an activity which will
help you transfer your new knowledge or skill
into real life situations or concerns.

Assessment This is a task which aims to evaluate your

level of mastery in achieving the learning
competency.

Additional Activities In this portion, another activity will be given

to you to enrich your knowledge or skill of the
lesson learned. This also tends retention of
learned concepts.

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module.

At the end of this module you will also find:

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this module.

The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of the
module. Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer What I Know before moving on to the other activities
included in the module.
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5. Finish the task at hand before proceeding to the next.
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If you encounter any difficulty in answering the tasks in this module, do not
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We hope that through this material, you will experience meaningful learning and
gain deep understanding of the relevant competencies. You can do it!

4
 What I Need to Know

This module was designed and written with you in mind. It is here to help you
master understand the purpose of Statement of Cash Flow and master the skills
preparing it using. The scope of this module permits it to be used in many different
learning situations. The language used recognizes the diverse vocabulary level of
students. The lessons are arranged to follow the standard sequence of the course.
But the order in which you read them can be changed to correspond with the
textbook you are now using.

The module is divided into two lessons, namely:

• Lesson 1 – Components and Structure of Cash Flows Statement
• Lesson 2 – Preparing the Cash Flows Statement

After going through this module, you are expected to:

1. discuss the components and structure of Cash Flow Statement (CFS);
(ABM_FABM12-If-10) and
2. prepare a CFS (ABM_FABM12-If-10).

5
 What I Know

The following are statements about the components and structure of Cash
Flow Statement. Read each item carefully and write TRUE if the statement is true
and FALSE if not. Use a separate sheet of paper for your answers.

1. The purpose of Cash Flow Statement (CFS) is to provide relevant information

about cash receipts and cash payments of an entity during a period.
2. Cash flow is classified as operating, investing and accounting activities.
3. Investing activities are cash flows related to purchase or sale of non-current
asset.
4. Cash receipts from sale of goods are classified under Operating activities.
5. Noncash transactions are reflected in the CFS.
6. Operating activities include cash inflow from sale of common stock.
7. Investing activities are presented before Operating activities.
8. Financing Activities are the principal-revenue producing activities of an
entity.
9. Financing activities are presented after Investing activities.
10. Cash payment for purchase of merchandise is classified under Operating
activities

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 Lesson
Components and Structure
1 of Cash Flow Statements
There are four basic Financial Statements namely: Statement of Financial
Position (SFP), Statement of Comprehensive Income (SCI), Statement of Changes in
Equity (SCE), and Cash Flow Statement (CFS). In this lesson you will learn more
about CFS’s components and structure.

What’s In

Recall your study of T-account and normal balances. On a separate sheet of

paper prepare a T-account for cash reflecting the effects of the following
transaction.
1. Collected 15000 pesos cash from cash sales
2. Paid salaries of employees amounting to 3,000 pesos
3. Paid rent of 2,000 pesos
4. Received additional 5,000 pesos investment from owner
5. Purchased office supplies amounting to 3,500 pesos

CASH

Debit Credit
Beginning Balance 20,000

Ending Balance

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 What’s New

Users of financial information are always interested to know if an entity

generates enough cash and cash equivalents regardless of the type of business.
This information can be seen in the Cash Flows Statement (CFS).

What is It

Cash Flow Statement is a statement that presents the inflow and outflow of
cash for the year. It is dated “for the year ended” because it reconciles the
beginning balance of cash to its year-end balance. Its primary purpose is to provide
important and timely information about cash receipts (inflow) and cash payments
(outflow) of an entity during a period. CFS is also useful in knowing about the
entity’s capacity to pay dividends and meet its obligations.

Cash flow transactions are classified into three main parts namely:
Operating, Investing, and Financing activities.

Operating Activities are directly related to the main revenue-producing

activities of the company or business. It includes cash effects of transactions that
create revenues and expenses. These activities enter into the determination of net
income.

The following are examples of cash flow transaction that are classified under
operating activities:

Cash Inflow Cash Outflow

• purchase of either goods or
• sale of goods or rendered
services
service
• salaries of employees
• interest received
• interest paid
• dividends received
• payment for selling and
administrative expenses

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 Investing Activities are cash flows related to purchase or sale of non-
current asset and other long-term investments.

The following are examples of cash flow transactions that are classified under
investing activities:

Cash Inflow Cash Outflow

• purchase of PPE, intangibles and
• sale of Property Plant and
other long-term assets.
Equipment (PPE), intangibles
and other long-term assets.
• loans to other entities.
• collection from a long-term note
receivable
• purchase of investments in debt
• sale of investments in debt or
or equity securities of other
equity securities of other
entities.
entities.
• collection of principal on loans to
other entities.

Financing Activities are cash transactions that are related to nontrade liabilities
(borrowings) and changes in equity.

The following are examples of cash flow transaction that are classified under
financing activities:

Cash Inflow Cash Outflow

• dividends paid to stockholders
• sale of common stock
• owners cash withdrawals.
• getting a long-term loan from a
bank.
• payment of principal for
amounts borrowed

The structure of CFS presents the results of the three activities discussed
previously. Operating activities section always appears first, followed by the
investing activities and lastly, financing activities. The sum of the three sections
equals the net increase or decrease in cash for the period. This amount is added to
the beginning cash balance to arrive at the ending cash balance.
For

9
The figure below illustrates the structure of a Cash Flow Statement.

COMPANY NAME
Statement of Cash Flows
For the year ended

Cash flows from operating activities

(List of individual inflows and outflows) Xx
Net cash provided (used) by operating activities xxx
Cash flows from investing activities
(List of individual inflows and outflows) Xx
Net cash provided (used) by investing activities xxx
Cash flows from financing activities
(List of individual inflows and outflows) Xx
Net cash provided (used) by financing activities xxx
Net increase (decrease) in cash xxx
Cash at beginning of period xxx
Cash at end of period xxx

CFS is strictly a cash concept. That means noncash transactions shall be excluded
in the CFS. Noncash transactions are disclosed either in the notes to financial
statement or on a separate schedule.

What’s More

The Cash T-account below presents all the cash transactions for the year.
On a separate sheet of paper classify the transactions as Operating, Investing,
and Financing activities.

CASH
January 1, 2020 150, 000
1/20 Cash sales 9,500 6/15 Payment to 28, 000
employees
4/10 Collection of Accounts 32, 000 7/22 Acquisition of 50, 000
Receivable computers
8/5 Additional contribution 60, 000 11/30 Loan payment 17, 300
from owner
Total debits 251, 500 Total credits 95, 300
December 31, 2020 156, 200

10
 What I Have Learned

1. The Cash Flow Statement is a component of the complete set of Financial

Statement.
2. The CFS’s purpose is to provide important and timely information
regarding cash receipts and cash payments of the entity for a period.
3. Cash flow transactions are classified as Operating, Investing, and
Financing activities.
4. Operating activities are transactions that are directly related to the
main revenue-producing activities of the company or business and are
Income Statement items.
5. Investing Activities are transactions related to purchase or sale of non-current
asset.
6. Financing Activities are transactions related to changes in equity and
borrowings.
7. The structure of CFS presents Operating activities first, followed by Investing
activities and lastly Financing activities.
8. Noncash transactions are excluded in CFS.

What I Can Do

Twin Soles Shoeline is a local shoe business existing in the market for years
now. It has a rented space in Guimaras where products are being displayed and has
a total of six employees. It is also the authorized distributor of various foot wears in
the province. It has generated substantial income that it invested in other ventures.
The following are the cash transactions of Twin Soles Shoeline. Classify the
following items below as Operating, Investing, and Financing Activities. Write your
answers on your answer sheet.

1. Proceeds from sale of footwear

2. Payment of employees’ salaries
3. Payment for the principal of loan
4. Payment to suppliers
5. Loans to other parties
6. Payment for store rental
7. Purchase of land
8. Proceeds from sale of old delivery truck

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 9. Purchase of packaging materials
10. Additional investment of the owner

Operating Investing Financing

Assessment

Below are items about the components and structure of CFS. Being able to
give the correct answers to these items will enable you to discuss the components
and structure of CFS. Analyze and choose the letter of the best answer. Write your
answers on a separate sheet of paper.

1. The following are components of Cash Flow Statement, except _____________.

a. Operating activities b. Investing activities
c. Financing activities d. Financial Activities

2. These are principal-revenue producing activities of the entity.

a. Operating activities b. Investing activities
c. Financing activities d. Financial Activities

3. Cash payment to acquire land is classified under ___________________.

a. Operating activities b. Investing activities
c. Financing activities d. none of the above

4. Cash Payment for the principal amount borrowed are classified under
_________________.
a. Operating activities b. Investing activities
c. Financing activities d. none of the above

5. Which of the following shall be presented under cash flow from operating
activities?
a. receipt from sale of Intangible assets
b. paid for borrowed amount
c. paid to suppliers for goods and services
d. cash received from issuing ordinary shares

12
6. Which of the following correctly states the purpose of CFS?
a. To provide important and timely information regarding cash receipts and
cash payments of an entity during a period
b. To disclose separately noncash investing and financing activities
c. To assess the capacity of an entity to pay dividends to stockholders
d. To give additional work to accountants.

7. The following are classified under Investing activities, except_____________.

a. payment for purchasing land
b. cash received from getting a long-term loan from a bank
c. cash collected from a long-term notes receivable
d. cash receipts from a sale of patent

8. Statement 1: Investing activities are presented first in the CFS.

Statement 2: Investing activities are presented before Financing activities
Which is correct?
a. Statement 1 is true; statement 2 is true.
b. Statement 1 is true; statement 2 is false.
c. Statement 1 is false; statement 2 is false.
d. Statement 1 is false; statement 2 is true.

9. Statement 1: Owner’s cash withdrawals are under Financing activities.

Statement 2: Cash collected from purchase of Property, Plant, and
Equipment is under Investing activities
a. Statement 1 is true; statement 2 is true.
b. Statement 1 is true; statement 2 is false.
c. Statement 1 is false; statement 2 is false.
d. Statement 1 is false; statement 2 is true.

10. In the CFS, Interest payments to creditors is classified as ______________.

a. Operating activities
b. Investing activities
c. Financing activities
d. None of the above

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 Additional Activities

Complete the table by indicating whether each item affects operating,

investing, and financing activities, or is a noncash transaction. In the next column
indicate if it is a cash inflow, cash outflow, or no effect. Copy the table on a
separate sheet of paper and answer.

Transactions CFS activity Cash inflow,

Affected outflow, or No
effect
Example: Recorded cash sales Operating Inflow
1. Recorded and paid interest
2. Purchased inventory on account
3. Borrowed ₱2,000,000 from a bank,
payable for 5 years
4. Acquired land by issuing check
amounting to ₱5,000,000
5. Acquired equipment in exchange to
a note payable

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 15
What I Know
1. True
2. False
3. True
4. True
5. False
6. False
7. False
8. False
9. True
10.True
What’s In
What's More
Operating Activities
1. Cash sales
2. Collection of Accounts Receivable
3. Payment to employees
Investing Activities
1. Acquisition of computers
Financing Activities
1. Additional contribution
from owners
2. Loan payment
Answer Key
 16
What I can do
Assessment
1. D
2. A
3. B
4. C
5. C
6. A
7. B
8. D
9. A
10. A
Additional Activities
 What I Know

Prepare a Cash Flow Statement using the following information available

from the financial statements of Good Company for the year ended December 31,
2019.

Net income ₱2,500,000

Depreciation expense 500,000
Amortization 5,000
Decrease in Accounts Receivable 530,000
Increase in Inventory 450,000
Increase in accounts payable 120,000
Payment of dividends 270,000
Decrease in income tax payable 80,000
Issued common shares for cash 150,000
Proceeds from sale of equipment 325,000
Purchase of patent for cash 80,000

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 Lesson
Preparing the Cash Flow
2 Statement
In the previous lesson you have learned the components and structure of
Cash Flow Statement. In this lesson you will be guided on how to prepare the CFS.

What’s In

The following are cash transactions of Better Company. Using a separate

answer sheet, copy the table below and classify the following items as cash inflow
or cash outflow under Operating, Investing and Financing activities.

1. Proceeds from sale of inventories

2. Payment of employees’ salaries
3. Dividends paid
4. Interest paid
5. Loans to other parties
6. Payment for store rental
7. Purchase of patent
8. Proceeds from sale of old delivery van
9. Payment of taxes
10. Additional investment of the owner

Operating Investing Financing

Inflow outflow Inflow outflow inflow outflow

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 What’s New

Business must be ready to respond to changes in order to survive. This

requires a careful and wise use of cash. It needs cash to pay for obligations and to
provide returns to its investors. Accordingly, the Philippine Accounting Standards
requires all entities to present a Cash Flow Statement (CFS). As mentioned in your
previous lesson, CFS provides important and timely information regarding cash
receipts and cash payments of the entity for a period. It is divided into three
components the Operating, Investing, and Financing activities.

What is It

To prepare a Cash Flow Statement, information comes from three sources:

1. Comparative Statement of Financial Position. It is a Statement of
Financial Position (SFP) that presents at least two accounting periods which
will allow you to compare and determine the amount of changes in assets,
liabilities, and stockholders’ equities from the beginning to the end of the
period.
2. Statement of Comprehensive Income. This contains information that
helps in determining the amount of net cash provided or used by operating
activities during the period.
3. Additional Information. Such information includes transaction data that
are needed to determine how cash was provided or used during the period.

There are three major steps in the preparation of CFS:

Step 1: Convert net income from an accrual basis to a cash basis to determine the
net cash provided/used by operating activities.

This can be done using either Direct method or Indirect method. The two
methods will differ on the process but will arrive at the same amount. In this lesson
we will use the Indirect method.

The indirect method adjusts net income or loss for items that do not affect
cash. A great majority of companies use this method. Companies prefer the indirect
method because it is easier and less costly to prepare. Indirect method of
presenting cash flow from operations begin with the accrual basis net income and
applies a series of adjustments to convert the income to cash basis.

The following are the guidelines offered for the adjustment of net income
from accrual basis to cash basis.
Rule 1. Determine the increases or decreases of the amount in the

19
 comparative SFP.
Rule 2. Starting with net income add back noncash expenses such as
depreciation expense and amortization expense.
Rule 3. Deduct gains and add losses that resulted from investing and
financing activities.
Rule 4. Deduct all increases and add all decreases in noncash current asset
Rule 5. Add all increases and deduct all decreases in current liabilities
account.
Step 2: Analyze changes in noncurrent asset and liability accounts and record as
either investing or financing activities. Cash flows from Investing and Financing
activities shall be reported using Direct method only.
The direct method shows in detail or itemizes the Investing and Financing
cash receipts and cash payments.

Step 3: Compare the net change in cash on the CFS with the change in the cash
account reflected on the balance sheet to make sure the amounts are the same.

To better understand the steps in preparing CFS we will study the financial
information of Super Company.

Super Company
Comparative Statement of Financial Position
December 31, 2019

2019 2018
Assets
Current Assets
Cash ₱55,000 ₱30,000
Accounts Receivable 15,000 18,000
Inventory 15,000 10,000
Prepaid expenses 6,000 3,000
Noncurrent Assets
Land 180,000 30,000
Equipment 30,000 20,000
Accumulated Depreciation (14,000) (7,000)
Total Assets ₱287,000 ₱104,000

Liabilities and Stockholder’s Equity

Current Liabilities
Accounts Payable ₱29,000 ₱17,000
Salaries Payable 9,000 11,500
Noncurrent Liabilities
Bonds Payable 120,000 30,000
Stockholders’ Equity
Common stock 50,000 30,000
Retained earnings 79,000 15,500
Total liabilities and Stockholders’ Equity ₱287,000 ₱104,000

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 Statement of Comprehensive Income
Sales Revenue ₱355,000
Cost of Goods Sold ₱148,000
Operating Expenses (excluding depreciation) 32,000
Depreciation expense 11,000
Salaries expense 3,000
Loss on disposal of equipment 5,000
Interest expense 22,000 221,000
Income before income tax 134,000
Income tax expense 38,200
Net income ₱95,800

Additional information for 2019:

1. The company sold equipment with book value of ₱8,000 (Cost ₱12,000 less
depreciation ₱4,000) for ₱3,000 cash.
2. Issued 98, 000 bonds payable plus ₱52,000 in cash to purchase a land.
3. Issued common stock for ₱20,000 cash.
4. The company declared and paid ₱32,300 cash dividends.

We now apply the three steps for preparing a CFS to the information given by
Super Company.
Step 1: Convert net income from an accrual basis to a cash basis to determine
the net cash provided/used by operating activities.
Super Company
Comparative Statement of Financial Position
December 31, 2019
Rule 1
2019 2018 Change in account
Assets balances
Increase/ Decrease
Current Assets
Cash ₱55,000 ₱30,000 ₱25,000 increase
Accounts Receivable 15,000 18,000 3,000 decrease
Inventory 15,000 10,000 5,000 increase
Prepaid expenses 6,000 3,000 3,000 increase
Noncurrent Assets
Land 180,000 30,000 150,000 increase
Equipment 30,000 20,000 10,000 increase
Accumulated Depreciation (14,000) (7,000) 7,000 increase
Total Assets ₱287,000 ₱104,000

Liabilities and Stockholder’s Equity

Current Liabilities
Accounts Payable ₱29,000 ₱17,000 ₱12,000 increase
Salaries Payable 9,000 11,500 2,500 decrease
Noncurrent Liabilities
Bonds Payable 120,000 30,000 90,000
increase
Stockholders’ Equity
Common stock 50,000 30,000 20,000 increase
Retained earnings 79,000 15,500 63,500 increase
Total liabilities and Stockholders’ Equity ₱287,000 ₱104,000

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 Refer to:
Net income ₱95,800
Depreciation Expense ₱11,000 Rule 2
Loss on disposal of equipment 5,000 Rule 3
Decrease in Accounts receivable 3,000 Rule 4
Increase in inventory (5,000) Rule 4
Increase in prepaid expense (3,000) Rule 4
Increase in accounts payable 12,000 Rule 5
Decrease in salaries payable (2,500) 20,500 Rule 5
Net cash provided by operating
activities ₱116,300

The illustration shows that after starting with net income of ₱95,800, the
sum of all the adjustments to net income is ₱20,500. This results to net cash
provided by operating activities of ₱116,300.

Step 2 : Analyze changes in noncurrent asset and liability accounts and record as
either investing or financing activities.

• Increase in Equipment account of ₱10,000 is explained by the

additional information that this net increase resulted from two
transactions: (1) the sale for ₱3,000 of equipment costing ₱12,000 and
(2) purchase of equipment worth ₱22,000. These transactions are
investing activities. The company should report each transaction
separately. Thus, it reports the sale as an inflow of cash for ₱3,000 and
reports the purchase of equipment as an outflow of cash for ₱22,000.

The T-account below shows how we get the purchase amount.

Equipment
Beginning ₱20,000
Purchase of 22,000 ₱12,000 Cost of
equipment equipment sold
End ₱30,000

• Increase in land account of ₱150,000 is made of ₱90,000 bonds and

₱60,000 cash. ₱60, 000 is considered an outflow from Investing activities.
• Increase in bonds payable of ₱90,000 is a noncash transaction since it is
used to purchase a land and will be reflected in a different schedule.
• The balance sheet reports an increase in Common Stock of ₱20,000. The
additional information section notes that this increase resulted from the
issuance of new shares of stock. This is a cash inflow reported in the
financing activities section.
• Increase in retained earnings of ₱63,500 during the year can be
explained by two factors: (1) net income of ₱95,800 increased retained
earnings, and (2) dividends paid of ₱32,300 decreased retained earnings.
Payment of the dividends (not the declaration) is reported as a cash
outflow under financing activity.

22
 Using the previous information, we can now prepare the CFS of Super
Company as illustrated below:
Super Company
Cash Flow Statement
For the year ended December 31, 2019
Cash flows from operating activities
Net income ₱95,800
Depreciation Expense ₱11,000
Loss on disposal of equipment 5,000
Decrease in Accounts receivable 3,000
Increase in inventory (5,000)
Increase in prepaid expense (3,000)
Increase in accounts payable 12,000
Decrease in salaries payable (2,500) 20,500
Net cash provided by operating activities 116,300

Cash flows from investing activities

Sale of equipment 3,000
Purchase of land (60,000)
Purchase of equipment (22,000)
Net cash used by investing activities (79,000)
Cash flows from Financing activities:
Issuance of common stock 20,000
Payment of cash dividends (32,300)
Net cash used by financing activities (12,300)
Net increase in cash 25,000
Cash at the beginning of the period 30,000
Cash at the end of the period ₱55,000

Step 3: Compare the net change in cash on the CFS with the change in the cash
account reflected on the balance sheet to make sure the amounts are the same.

The net change in cash is an increase of 25, 000 that is also reflected on the
increase in cash account in our balance sheet.

What’s More

BEST Clothing Line provided the following data for the preparation of Cash
Flow Statement for the current year:
Net income for the current year ₱1,980,000
Depreciation expense 510,000
Amortization of Intangible assets 100,000
Decrease in Accounts receivable 630,000
Increase in inventory 450,000
Increase in accounts payable 120,000
Payment of dividends 270,000
Purchase of office equipment 110,000
Increase in long-term note payable 1,000,000
Decrease in income tax payable 80,000

23
1. What amount should be reported as net cash flow from operating activities
using the indirect method?

2. What amount should be reported as net cash flow from investing activities?

3. What amount should be reported as net cash flow from financing activities?

What I Have Learned

1. In order to prepare a Cash Flow Statement, information must come from three
sources namely, Comparative Statement of Financial Position, Statement of
Comprehensive income and Additional Information.

2. There are also three steps that one must follow in the preparation of CFS,
Step 1: Determine the Operating Activities by converting net income in accrual
basis to cash basis.

Step 2: Analyze changes in noncurrent asset and liability accounts and record
as either investing or financing activities.

Step 3: Compare the net change in cash on the statement of cash flows with
the change in the cash account reflected on the Statement of Financial
Position to make sure the amounts agree.

3. Cash flows from Operating activities shall be reported using either direct or
indirect method while cash flows from Investing and Financing activities shall
be reported using direct method only.

4. Guidelines in using Indirect method are as follows:

Rule 1. Determine the increases or decreases of the amount in the
comparative SFP.

Rule 2. Starting with net income add back noncash expenses such as
depreciation expense and amortization expense.

Rule 3. Deduct gains and add losses that resulted from investing and
financing activities.

Rule 4. Deduct all increases and add all decreases in noncash current asset

Rule 5. Add all increases and deduct all decreases in current liabilities
account.

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 What I Can Do

Prepare a CFS for Grand Company using the following information for the
current year. Write your answers on a separate sheet of paper.

Cash balance, January 1 ₱5,500,000

Increase in Accounts receivable 1,500,000

Decrease in inventory 3,000,000

Increase in Accounts payable 3,500,000

Decrease in tax payable 1,000,000

Payment of principal amount borrowed 500,000

Depreciation and amortization 1,000,000

Gain on sale of equipment 250,000

Proceeds from issuance of share capital 3,500,000

Purchase of land 6,500,000

Proceeds from sale of equipment 1,500,000

Owners cash withdrawal 1,000,000

Net income 7,500,000

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 Assessment

On a separate sheet of paper, prepare a CFS using the information given

below.
MEGA company provided the following comparative statement:

2019 2018
Cash and cash equivalents ₱4,600,000 ₱6,400,000
Account Receivable 2,000,000 2,500,000
Inventory 7,000,000 5,500,000
Prepaid expenses 300,000 500,000
Property, plant and equipment 48,000,000 38,000,000
Accumulated depreciation (19,000,000) (15,000,000)
Accounts payable 5,900,000 8,500,000
Accrued expense 1,000,000 400,000
Note payable – bank (current) 1,000,000 4,000,000
Note payable – bank (noncurrent) 10,000,000 -
Share capital 25,000,000 25,000,000

Additional information
1. Cash needed to purchase new equipment was raised by borrowing from a
bank with a long-term note.
2. Equipment costing ₱3,000,000 with ₱500,000 depreciation was sold for
₱2,800,000.
3. The entity paid cash dividend of ₱2,000,000 in the current year.
4. Net income for the year is ₱2,000,000.
5. Depreciation expense is ₱4,500,000.

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 Additional Activities

The bookkeeper of Mighty Co., Mr. Huge, is trying prepare a Cash Flow
Statement for the year ended December 31, 2019. He was able to prepare the
following CFS, but finds it difficult to arrive at the correct ending cash balance.
Mighty Co.
Cash Flow Statement
For the year ended December 31, 2019

Cash flows from operating activities

Net income ₱52,800
Depreciation Expense ₱6,200
Decrease in inventory (7,900)
Increase in accounts payable 12,000
Payment of cash dividends (48,000)
Increase in accounts receivable (15,700)
Decrease in notes payable (10,500) (63,900)
Net cash used by operating activities (11,100)

Cash flows from investing activities

Sale of equipment 16,000
Gain on sale of equipment 3,000
Purchase of land (120,000)
Net cash used by investing activities (101,000)
Cash flows from Financing activities:
Issuance of bonds 200,000
Purchase of investments (78,000)
Net cash provided by financing activities 122,000
Net increase in cash 9,900
Cash at the beginning of the period 16,800
Cash at the end of the period ₱26,700

Additional Information are as follows:

1. Cash at the beginning of the period is ₱16,800 and ending cash balance
is ₱42,700.
2. There is a ₱16,000 difference between the correct ending cash balance
and the balance as shown in the CFS prepared.
3. No other cash transactions occurred during 2019.
4. Net cash provided by operating activities is ₱55,900
5. Net cash used by investing activities is ₱182,000
6. Net cash provided by financing activities is ₱152,000

Required: Prepare a correct Cash Flow Statement for Mighty Co.

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 28
What I Know
What's In
Answer Key
 29
What’s More
What I Can Do
 30
Assessment
Additional Activities
References
• K to 12 Curriculum Guide in Fundamentals of Accountancy, Business, and
Management 2
• Teaching Guide for Senior High School, FUNDAMENTALS OF ACCOUNTANCY,
BUSINESS, AND MANAGEMENT 2 , CHED,2016

• Dani Rose C. Salazar . Fundamentals of Accountancy, Business, and Management

2. Rex Bookstore

• Accounting Principles 12th Edition by Jerry J. Weygandt PhD, CPA, et.al

• Practical Accounting One 2011Edition by Conrado T. Valix and Christian Aris M.

Valix

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For inquiries or feedback, please write or call:

Department of Education - Bureau of Learning Resources (DepEd-BLR)

Ground Floor, Bonifacio Bldg., DepEd Complex

Meralco Avenue, Pasig City, Philippines 1600

Telefax: (632) 8634-1072; 8634-1054; 8631-4985

Email Address: blr.lrqad@deped.gov.ph * blr.lrpd@deped.gov.ph

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