BUSINESS1 - Statement of Cash Flows

Statement of Cash Flows

· The Statement of Cash Flows shows how money comes in and goes out of the business.

· It explains why cash increased or decreased during a period.

Sections of Cash Flow

1. Operating Activities

o These are daily business activities.

o Examples: receiving cash from sales, paying rent, salaries, and utilities.

2. Investing Activities

o These involve buying or selling long-term assets.

o Examples: buying equipment, selling old machines, purchasing land.

3. Financing Activities

o These deal with money from the owner or creditors.

o Examples: owner invests more money, business borrows from a bank, repaying a loan, owner withdrawing money.

The accounts normally found in each part of the Statement of Cash Flows

1. Operating Activities

· Day-to-day business transactions.

· Usually related to current assets and current liabilities.

Examples of accounts:

· Cash Inflows
Cash Sales
Collection from Accounts Receivable
Other Operating Income

· Cash Outflows
Payments to Suppliers (Accounts Payable)
Payments for Rent, Salaries, Utilities, Insurance
Income Taxes Paid

2. Investing Activities

· Buying or selling long-term assets.

· Usually related to non-current assets.

Examples of accounts:

· Cash Outflows
Purchase of Equipment
Purchase of Land, Buildings, or Furniture
Purchase of Investments

· Cash Inflows
Sale of Equipment or Property
Sale of Long-term Investments

3. Financing Activities

· Transactions with the owner or creditors.

· Usually related to long-term liabilities and owner’s equity.

Examples of accounts:

· Cash Inflows
Additional Capital/Investment by Owner
Proceeds from Bank Loan or Borrowings

· Cash Outflows
Withdrawals or Drawings by Owner
Repayment of Bank Loan
Payment of Interest or Dividends

Operating - daily operations (revenues, expenses, payables, receivables).

Investing - long-term assets (buying or selling property, equipment).

Financing - funding (owner’s capital, loans, withdrawals).

Real-Life Example

Imagine you run a small printing shop.

· You earned ₱20,000 from printing jobs (Operating).

· You bought a new printer for ₱10,000 (Investing).

· You borrowed ₱5,000 from the bank (Financing).

Cash Flow explains:

· Start of month: ₱2,000

· Cash In: ₱20,000 + ₱5,000 = ₱25,000

· Cash Out: ₱10,000

· End of month: ₱17,000

Example

Transactions for November

Business Name: Sir-O Photography

Operating Activities

1. Received ₱35,000 in cash from photography jobs.

2. Paid ₱8,000 rent for the studio.

3. Paid ₱5,000 for utilities.

4. Paid ₱10,000 salaries to part-time assistants.

5. Paid ₱2,000 to printing suppliers.

Investing Activities

6. Bought a new laptop for ₱20,000.

7. Sold old camera lens for ₱4,000.

Financing Activities

8. Owner invested an additional ₱10,000 into the business.

9. Borrowed ₱15,000 from the bank.

10. Owner withdrew ₱5,000 for personal use.

Transactions - ABM-Synergy School Supplies Co.

Operating Activities (daily operations)

1. Collected ₱20,000 cash from customers for school supplies sold.

2. Paid ₱5,000 for electricity and water bills.

3. Paid ₱10,000 salaries to staff.

4. Paid ₱8,000 cash to suppliers for merchandise previously bought on credit.

Investing Activities (buying or selling long-term assets)

5. Bought shelves and display counters for ₱25,000.

6. Sold an old printer for ₱3,000 cash.

Financing Activities (capital and loans)

7. Owner invested an additional ₱15,000 cash into the business.

8. Borrowed ₱20,000 from the bank to expand operations.

9. Owner withdrew ₱5,000 for personal use.

Beginning Cash Balance

10. Business started December with ₱100,000 cash.