Chapter ll

CASH FLOW
STATEMENT
Presented by : Group 2
 A cash flow statement, also
known as statement of cash
flows or funds flow statement,
is a financial statement that
shows how changes in balance
sheet accounts and income
affect cash and cash
equivalent, and breaks the
analysis down to operating,
investing, and financing
activities.
 The cash flow statement is
intended to:

1. provide information on a firm's liquidity and

solvency and its ability to change cash flows in
future circumstances;
2. provide additional information for evaluating
changes in assets, liabilities and equity:
3. improve the comparability of different firms'
operating performance by eliminating the
effects of different accounting methods,
4. indicate the amount, timing and probability of
future cash flows.
 Operating activities
Operating actives include the production, sales and
delivery of company product as wall acting and fruits
customers. Operating cash flows include:

1. Receipts from the sale of goods or services

2. Reciepts for the sale of loans, debt or equity
instruments in a trading portfolio
3. Interest received on loans
4. Dividends received on equity securities
5. Payments to suppliers for goods and services
6.Payments to employees or on behalf of employees
7.Interest payments (alternatively, this can be reported
under financing activities in IAS 7 and USGAAP
non cash items such as:

1. Depreciation (loss of tangible asset value over

time
2. Deferred tax
3. Amortization (loss of intangible asset value over
time)
4. Any gains or losses associated with the sale of a
non-current asset, because associated cash flows
do not belong in the operating section (unrealized
gains/losses are also added back from the income
statement).
This is an indirect method of determining cash flow
from operations.
 Investing activities

Examples of investing activities

are:

1. Purchase or sale of an asset

(assets can be land, building,
equipment, marketable
securities, etc.)
2. Loans made to suppliers or
received from customers
3. Payments related to mergers
and acquisitions
 Financing activities

Financing activities include the inflow of cash from

investors such as banks and shareholders, as well as
the outflose of cash to shareholders as dividends as
the company generates income.

1. Proceeds from issuing short-term or long-term

debt
2. Payments of dividends
3. Payments for repurchase of company shares
4. Repayment of debt principal, including capital
leases
5. For non-profit organizations, receipts of donor-
restricted cash that is limited to long-term purposes
Items under the financing
activities section includes:

1. Dividends paid
2. Sale or repurchase of
the company's stock
3. Net borrowing
4. Payment of dividend
tax
 Disclosure of non cash
activities

Non- cash investing and financing activities

are disclosed in footnotes to the financial
statements.

Non- cash financial Include:

1. Leasing to purchase an asset
2. Converting debt to equity
3. Exchanging non- cash assets or liabilities
for other non- cash asset liabilities
4. Issuing shares in exchange for assets
 DIRECT METHOD

- The direct method for creating a

cash flow statement report major
classes of gross cash receipts and
payments. Dividends recieved may be
supported under operating activities
or investing activities.
Sample cash flow statement using the direct method

Sample cash flow from (used in )operating activities

Cash receipts from customer 29,500
Cash paid to suppliers and employees (12,000)
Cash generated from operations (sum) 17,500
Interest paid (2,000)
Income taxes paid (3,000)
Net cash flows from operating activities 12,500

Cash flows from (used in) investing activities

Proceeds from the sale of equipment 17, 500
Dividends received 13,000
Net cash flows from investing activities 30,500 61,000

Cash flows from (used in) financing activities

Dividens paid (25, 000)
Net cash flows used in financing activities (25, 000)
Net increase in cash and cash equivalent 18,500
Cash and cash equivalent, beginning of year 10,000
Cash and cash equivalent, end of year 28,500
 INDIRECT METHOD

-the Indirect method uses

net income as a starting point
makes adjustment from all
cash- based transactions.
Rules (Operating Activities)
To find Cash Flows from operating activities
using the Balance sheet and Net Income

For Increases Net Inc. Adj

Current Assets( non-cash) Decreases
Current Liabilities Increase

For All Non- Cash

*Expenses (Decreases in fixed assets) Increase

*Non- cash expenses must be added back to NI. Such expenses may be
represented on the balance sheet as decreases in long term asset accounts.
Thus decreases in fixed asstes increase NI.
Cash flows operating activities:

1. Decrease in non-cash current assets is added to net income

2. Increase in non- cash current asset is subtracted from net
income.
3. Increase in current liabilities se added to net income
4. Decrease in current liabilities in subtracted from net income
5. Expenses with no cash outflows are added back to net income
(depreciation and / or amortization expense are the only
operating items that have no effects on cash flows in the period).
6. Revenues with no cash inflows are subtracted from net income
7. Non-operating losses are added back to net income
8. Non- operating gains are subtracted from net income
The intricacies of this procedure might be seen as :
Net Cash Flows from Operating activities= Net income+ Rule items

Illustration:
Consider a hotel company that has a net income of
P1, 000,000 this year, and it's Account receivable (A/R) increased by
P250, 000 since the beginning of the year

If the balances of all other current assets, long- term asset and
current liabilities did not change over the year, the cash flows could
be determined by the rules above as P1, 000,000 - 250, 000 = Cash
flows from operating activities= P750, 000
Net income = Revenue - Cost of sale - Depreciation
expense - Other expenses

The net income figure will be decreased by the

building depreciation that year. This depreciation is
not associated with an exchange of cash ; therefore,
the depreciation is added back into net income to
remove the non- cash activity.
Rules (Financing Activities)

1. Include as outflows, reductions of long term notes payable (as

would represent the cash repayment of debt in the balance
sheet)
2. Or as inflows, the issuence of new notes payable .
3 Include as outflows, all dividends paid by the entity to oubide
parties
4. Or as inflows, dividend payments received from outside
parties
5. Include as outflows, the purchase of notes stock or bonds
6. Or as inflows, the receipts of payments on such financing
vehicles

In the case of more advanced accounting situation, such as

when dealing with subsidiaries, the accountant must-
1. Exclude intra- company dividend payments
2. Exclude intra- company bond interest
Cash flow of DME Hotel Company

DME Hotel Company Flow Statement

(all numbers in millions P)
Period ending 03/31/2010 03/31/2009 03/31/2008
Net income 21,538 24,589 17, 046
Operating activities, cash flows provided by used in:
Depreciation and amortization 2,790 2,592 2,747
Adjustment to net income 4,617 621 2,910
Decrease (increase) in accounts receivable 12,503 17,236 --
Increase(decrease) in liabilities (A/P, taxes payable) 131,622 19,822 37, 856
Decrease (increase) in inventories -- -- --
Increase (decrease) in other activities (173, 057) (33, 061) (62, 963)
Net cash flow from operating activities 13 31,799 (2, 404)
Investing activities, cash flows provided by or used in:
Capital expenditures (4, 035) (3, 724) (3, 011)
Investments (201, 777) (71, 710) (75,649)
Other cash flows from investing activities 1,606 17,009 (571)
Net cash flows from investing activities (204, 206) (58,425) (79,231)

Financing activities, cash flows provided by used in:

Dividends paid (9, 826) (9, 188) (8, 375)
Sale(repurchase) of stock (5, 327) (12, 090) 133
Increase (decrease) in debt 101,122 26,651 21,204
Other cash flows from financing activities 120,461 27,910 70,349
Net cash flows from financing activities 206,430 33,283 83,311
Effect of exchange rate changes 645 (1, 840) 731
Net increase (decrease) in and cash equivalent 2,882 4,817 2,407
 ou !
k Y
h a n
T Members:
Mariquit, Irish
Gomez, Maylyn
Daguim, Romelyn
Almeda, Bryce
Dante, Pellejera
Uma, Aaron