STATEMENT OF CASH FLOW

A statement reporting the impact of a

firms operating, investing, and financing
activities on cash flows over accounting
period.

A statement reporting the impact of a

firms operating, investing, and financing
activities on cash flows over accounting
period.
Operating

activities
include the net income, depreciation,
amortization and changes in working capital
other than cash and short term debt.

Depreciation
The charge to reflect the cost of tangible
assets (plant and equipment) used up in the
production process. It is not a cash outlay

Amortization
The noncash charge similar to depreciation
except that it is use to write off the costs of
intangible assets (patents, copyrights, trademarks
and goodwill.)

Working Capital (WC)

also known as net working capital, or working capital
ratio, is a measure of both a company's efficiency and
its short-term financial health. The working capital
ratio is calculated as:
Working capital = current assets current liabilities

If working
capital is +

company is able to pay off its

short term liabilities

If working
capital is -

company is currently unable to meet

its short term liabilities with its
current assets

Net Income

+ Depreciation and amortization

+ Decreases in current assets

- Increases in current assets

+ Increases in current liabilities
- Decrease in current liabilities

Investing activities
include purchases and sales of fixed assets

Investing activities
include purchases and sales of fixed assets

FIXED

ASSETS
purchasing or acquisition cash is reduced
selling cash is increased

Financing activities
include raising cash by issuing short term debt, long
term debt, or stock, or using cash to pay dividends or
to buy back outstanding stocks or bonds

SECURITY TRANSACTIONS AND DIVIDEND

PAYMENTS
issuance of stocks or bonds increase in cash
payment of outstanding debts
decrease in
buying back of stocks
cash
payment of dividends

Operating cash
flows

Operating cash
flows

Current assets

Current liabilities
Long-term
liabilities

Long-term assets

Investing cash
flows

Stockholders
Equity

Financing cash
flows

Its main advantages are as follows:

(i) Planning and Co-ordination of Financial Operations. Cash Flow
Statement is useful is evaluating Financial policies and current cash
position. Since cash is the basis for carrying on operations, the Cash Flow
Statement prepared on an estimated basis for the next accounting period
will enable the management to plan and co-ordinate the financial
operations probably. The management comes to know how much cash is
needed in the future and at what time and how can it be arranged-how
much internally and how much from outside. It is especially useful in
preparing cash budgets.

(ii) A Control Device. Cash Flow statement is also a control device for the
management. A comparison of cash flow statement of previous year with
the budget for that year would indicate to what extent the resources of the
enterprise were raised an applied according to the plan. Thus a
comparison of original forecast with actual results may highlights trends of
movement that might otherwise go undetected.

(iii) Useful to internal Financial Management. Since it gives a clear

picture of cash inflow from operations (and not income flow of operation),
it is, therefore, very useful to internal financial management in
considering the possibility of retiring ling-term debts, in planning
replacement of plant facilities or in formulating dividend policies.
(iv) Profit and Cash Positions. It enables the management to account
for situation when business has earned huge profits yet run without
money or when it has suffered a loss and still has plenty of money at the
bank.

(v) Short-term Financial Decisions. Cash Flow Statement helps the

management in taking short-term financial decisions. Suppose, if firm
wants to know its state of solvency after one month from to date, it is
possible only from Cash Flow analysis and not from Fund Flow
Statement. Shorter the period, greater is the importance of Cash Flow
Statement.

CASH FLOW STATEMENT

EXAMPLE
You are the owner of a garment company and was wondering how cash
flowed on your operations. Your Accountant gave you the January and
December balance.
Assets
Cash
Accounts Receivable
Inventories
Prepaid Expenses
Current Assets

Equipment
Less: Depreciation
Net
TOTAL
Liabilities and Stockholders Equity
Accounts Payable
Other current liabilities
Bonds Payable
Long-term bank borrowing
Common stock
Retained Earnings
TOTAL

JANUARY
62,000.00
73,000.00
136,000.00
41,000.00
312,000.00
236,000.00
73,000.00
163,000.00
475,000.00

DECEMBER
38,000.00
108,000.00
222,000.00
13,000.00
381,000.00
486,000.00
121,000.00
365,000.00
746,000.00

76,000.00
32,000.00
56,000.00
35,000.00
125,000.00
151,000.00
475,000.00

85,000.00
56,000.00
20,000.00
89,000.00
203,000.00
293,000.00
746,000.00

Your also paid dividends of Php51, 000. With this,

you started to do a cash flow statement to get on
with the analysis. How would the cash flow
statement look like?

CASH FLOW STATEMENT

EXAMPLE
Assets
Cash
Accounts Receivable
Inventories
Prepaid Expenses
Current Assets
Equipment
Less: Depreciation
Net, Equipment
TOTAL
Liabilities and
Stockholders Equity
Accounts Payable
Other current liabilities
Bonds Payable
Long-term bank borrowing
Common stock
Retained Earnings
TOTAL

January

December

62,000.00
73,000.00
136,000.00
41,000.00
312,000.00
236,000.00
73,000.00
163,000.00
475,000.00

38,000.00
108,000.00
222,000.00
13,000.00
381,000.00
486,000.00
121,000.00
365,000.00
746,000.00

Increase/ (Decrease)
(24,000.00)
35,000.00
86,000.00
(28,000.00)
69,000.00
250,000.00
48,000.00
202,000.00
271,000.00

76,000.00
32,000.00
56,000.00
35,000.00
125,000.00
151,000.00
475,000.00

85,000.00
56,000.00
20,000.00
89,000.00
203,000.00
293,000.00
746,000.00

9,000.00
24,000.00
(36,000.00)
54,000.00
78,000.00
142,000.00
271,000.00

CASH FLOW STATEMENT

EXAMPLE

Net income = ?!?!

CASH FLOW STATEMENT

EXAMPLE

Recall:
R/E (end) = R/E (beg) + net income dividends

CASH FLOW STATEMENT

EXAMPLE

Recall:
R/E (end) = R/E (beg) + net income dividends

293,000 = 151,000 + net income 51,000

CASH FLOW STATEMENT

EXAMPLE

Recall:
R/E (end) = R/E (beg) + net income dividends

293,000 = 151,000 + net income 51,000

Net income = 193,000

CASH FLOW STATEMENT

EXAMPLE
Operating
Net Income

193,000.00

Depreciation

48,000.00

Accounts Receivable

(35,000.00)

Inventories

(86,000.00)

241,000.00

Prepaid Expenses

28,000.00

Accounts Payable

9,000.00

Other Current Liabilities

24,000.00

(60,000.00)

Equipment

(250,000.00)

(250,000.00)

Bonds Payable

(36,000.00)

Investing

Financing
LT Bank Borrowing

54,000.00

Common Stock

78,000.00

Dividends
Net Decrease in Cash

(51,000.00)

45,000.00
(24,000.00)

Cash and Cash Equivalents (Jan.1)

62,000.00

Cash and Cash Equivalents (Dec.31)

38,000.00

CASH FLOW STATEMENT

EXAMPLE
Assets

January

December
Increase/ (Decrease)

Cash
Accounts Receivable
Inventories
Prepaid Expenses
Current Assets
Equipment
Less: Depreciation
Net, Equipment
TOTAL
Liabilities and
Stockholders Equity
Accounts Payable
Other current liabilities
Bonds Payable
Long-term bank borrowing
Common stock
Retained Earnings
TOTAL

62,000.00 38,000.00

(24,000.00)

73,000.00
136,000.00
41,000.00
312,000.00
236,000.00
73,000.00
163,000.00
475,000.00

108,000.00
222,000.00
13,000.00
381,000.00
486,000.00
121,000.00
365,000.00
746,000.00

35,000.00
86,000.00
(28,000.00)
69,000.00
250,000.00
48,000.00
202,000.00
271,000.00

76,000.00
32,000.00
56,000.00
35,000.00
125,000.00
151,000.00
475,000.00

85,000.00
56,000.00
20,000.00
89,000.00
203,000.00
293,000.00
746,000.00

9,000.00
24,000.00
(36,000.00)
54,000.00
78,000.00
142,000.00
271,000.00

CASH FLOW STATEMENT

EXAMPLE
You are the owner of a garment company and was wondering how cash
flowed on your operations. Your Accountant gave you the January and
December balance sheets and relayed that you had a net profit of $ 193,000
for the year.
Assets
Cash
Accounts Receivable
Inventories
Prepaid Expenses
Current Assets
Equipment
Less: Depreciation
Net, Equipment
TOTAL
Liabilities and Stockholders Equity
Accounts Payable
Other current liabilities
Bonds Payable
Long-term bank borrowing
Common stock
Retained Earnings
TOTAL

JANUARY
62,000.00
73,000.00
136,000.00
41,000.00
312,000.00
236,000.00
73,000.00
163,000.00
475,000.00

DECEMBER
38,000.00
108,000.00
222,000.00
13,000.00
381,000.00
486,000.00
121,000.00
365,000.00
746,000.00

76,000.00
32,000.00
56,000.00
35,000.00
125,000.00
151,000.00
475,000.00

85,000.00
56,000.00
20,000.00
89,000.00
203,000.00
293,000.00
746,000.00

CASH FLOW STATEMENT

EXAMPLE
You are the owner of a garment company and was wondering how cash
flowed on your operations. Your Accountant gave you the January and
December balance sheets and relayed that you had a net profit of $ 193,000
for the year.
Assets
Cash
Accounts Receivable
Inventories
Prepaid Expenses
Current Assets

Net, Equipment
TOTAL
Liabilities and Stockholders Equity
Accounts Payable
Other current liabilities
Bonds Payable
Long-term bank borrowing
Common stock
Retained Earnings
TOTAL

JANUARY
62,000.00
73,000.00
136,000.00
41,000.00
312,000.00

DECEMBER
38,000.00
108,000.00
222,000.00
13,000.00
381,000.00

163,000.00
475,000.00

365,000.00
746,000.00

76,000.00
32,000.00
56,000.00
35,000.00
125,000.00
151,000.00
475,000.00

85,000.00
56,000.00
20,000.00
89,000.00
203,000.00
293,000.00
746,000.00

CASH FLOW STATEMENT

(FIXED ASSETS, NET)

Fixed asset (end / new)

Residual
+ depreciation
Use of cash (e.g. acquisition)
- Fixed asset (beg / old)
Source of cash (e.g. selling)

The following are the ABC Companys year-end balance sheets for December 31
for the past two years .

.
Income Tax Payable
Plant and Equipment
Accumulated Depreciation
Accounts Payable
Inventory
Cash
Capital Stock
Accounts Receivable
Accrued Wages
Notes Payable
Prepaid Insurance
Retained Earnings
Short-term Bank Loans

2009
$ 8,130
54,600
18,000
12,140
14,280
16,400
12,000
18,920
7,320
24,000
2,630
19,240
6,000

Required: Cash Flow Statement

2008
$ 8,240
51,400
13,500
13,610
12,430
17,250
8,000
16,480
7,890
30,000
2,280
13,600
5,000

The following are the ABC Companys year-end balance sheets for
December 31 for the past two years . Prepare cash flow statement.

.
ACCOUNTS

2010

2009

Income Tax Payable

$8,130

$8,240

($110)

Plant and Equipment

54,600

51,400

$3,200

Accumulated Depreciation

18,000

13,500

$4,500

Accounts Payable

12,140

13,610

($1,470)

Inventory

14,280

12,430

$1,850

Cash

16,400

17,250

($850)

Capital Stock

12,000

8,000

$4,000

Accounts Receivable

18,920

16,480

$2,440

Accrued Wages

7,320

7,890

($570)

Notes Payable

24,000

30,000

($6,000)

Prepaid Insurance

2,630

2,280

$350

Retained Earnings

19,240

13,600

$5,640

Short-term Bank Loans

6,000

5,000

$1,000

Increase /
Decrease

ITEM
Cash
Accounts Receivable
Inventory
Gross Fixed Asset
Amortization
Accounts Payable
Accruals
Long Term Debt
Net Income
Dividends

Required: Prepare Cash Flow Statement

CHANGE
-100
700
-300
900
1000
300
-100
-200
600
400

Financial statements for Mabini Construction Company are given 2009 and 2010
in summary form. The president of the company is considering expansion and would like
your views on the firms ability to generate funds.
Mabini Construction Company
Balance Sheet for Year 2010 - 2011
(in thousand)

Mabini Construction Company

Income Statement for the Year 2011
(in thousand)

Net sales
Cost of construction
billed
Operating expenses
Depreciation expense
Interest expense
Net income

2010

2011

Cash

386

607

Marketable securities

920

1,320

1,472

1,890

746

1,046

Plant and equipment (net)

3,762

3,816

Total assets

7,286

8,679

Accounts payable

856

831

Bank loans payable

482

643

Long-term notes payable

1,800

1,200

Common stock

2,500

3,700

Retained earnings

1,648

2,305

Total equities

7,286

8,679

8,716
5,552
1,085
232
290
1,557

Accounts receivable
Inventory

The following financial statements are from Lucena Company in ($):

Dec. 31, 2010
14,000
22,000
65,000
85,000

Dec. 31, 2011

16,000
28,000
55,000
79,000

TOTAL ASSETS

186,000

178,000

Accounts Payable
Bonds Payable
Common Stock (par value of $10)
Retained Earnings

30,000
60,000
60,000
36,000

15,000
75,000
60,000
28,000

TOTAL L AND SE

186,000

178,000

Cash
Accounts Receivable (net)
Inventories
Fixed Assets (net)

INCOME STATEMENT FOR 2011

Sales
Cost of Goods Sold
Gross Margin
Operating Expenses (including $20,000 of depreciation expense)
Income before Taxes
Income Taxes
Income after Taxes

360000
240000
120000
100000
20000
8000
12000