3 CASH FLOW STATEMENT

A. Definition

A cash flow statement is a basis component of the financial statements summarizing the
operating, investing, and financing activities of an enterprise.

In simple language, the cash flow statement provides information about the cash receipts and cash
payments of an enterprise during the period.

B. Purpose of cash flow statement

The primary purpose of a cash flow statement is to provide relevant information about cash receipts and cash
payments of an entity during a period. It provides information that enable users to evaluate the changes in net
assets of an entity, its financial structure, liquidity and solvency.

C. Cash and cash equivalents

The cash flow statement is designed to provide information about the change in an enterprise's cash and
cash equivalents.

Cash comprises cash on hand and demand deposits.

Cash equivalents are short-term highly liquid investments that are readily convertible to know amount of cash
and which are subject to an insignificant risk of change in value.

The standard provides that an investment normally qualifies as a cash equivalent only when it has short
maturity of three months or less from date of acquisition. In other words, the investment must be acquired
three months of less before the date of maturity. Ex. Three-month treasury bill, three-month time deposit,
three-month money market instrument

D. Classification of cash flows

a. Operating activities : are the cash flows derived primarily from the principal revenue
producing activities of the entity. In other words, operating activities generally result from
transactions and other events that enter into determination of net income or loss.

Examples:
a. Cash receipts from sale of goods and rendering services
b. Cash receipts from royalties, rental fees, commissions and other revenue
c. Cash payments to suppliers for goods or services
d. Cash payments for selling, administrative and other expenses
e. Cash receipts and cash payments of an insurance enterprise for premiums and claims annuities
and other policy benefits
f. Cash payments or refunds of income taxes unless they can be specifically identified with
financing and investing activities
g. Cash receipts and payments for securities held for dealing or trading purposes.

Note: An entity may hold securities and loans for dealing or trading purposes, in which case they are
similar to inventory acquired specifically for resale. Therefore, cash flows arising from the
purchase and sale of dealing or trading securities are classified as operating activities.
 b. Investing activities : are cash flows derived from the acquisition and disposal of long-term
assets and other investments not included in cash equivalent. In simple terms, investing activities
include cash flows from transactions involving nonoperating assets.

Examples:
a. Cash payments to acquire property, plant and equipment, intangibles and other long-term assets
b. Cash receipts from sales of property, plant and equipment, intangibles, and other long-term
assets.
c. Cash payment to acquire equity or debt instruments of other entities and interests in joint
ventures (current and long-term investments).

d. Cash receipts from sales of equity or debt instruments of other entities and interests in joint
venture.
e. Cash advances and loans to other parties (other than advances and loans made by
financial institution)
f. Cash receipts from repayments of advances and loans made to other parties.
g. Cash payments for future contract, forward contract, option contract and swap contract.
h. Cash receipts for future contract, forward contract, option contract and swap contract.

c. Financing activities : are the cash flows derived from the equity capital and borrowings of the
entity. In other words, financing activities are the cash flows that result from transactions between
the entity and its owners (equity financing) and between the entity and its creditors (debt financing).

Examples:
a. Cash receipts from issuing shares or other equity instruments (for example, issuance of
common and preferred stock)
b. Cash payments to owners to acquire and redeemed the enterprise's shares (example, payment
for treasury stock)
c. Cash receipts from issuing debentures, loans, notes, bonds, mortgages, and other short or long
term borrowings.
d. Cash payments for amounts borrowed.
e. Cash payments by a lessee for the reduction of the outstanding liability relating to finance lease.

E. Non cash transactions

Investing and financing transactions that do not require use of cash or cash equivalents shall be excluded from
the cash flow statement. Such transactions shall be disclosed elsewhere in the financial statements either
in the notes to financial statements or in a separate schedule. Accordingly the following noncash transactions
are disclosed separately:

a. Acquisition of asset either by assuming directly related liability or by means of a finance lease.
b. Acquisition of asset by means of issuing share capital or bonds payable.
c. Conversion of debt to equity, for example conversion of bonds payable to share capital.
d. Conversion of preference share to ordinary shares.

F. Interest

Interest paid and interest received may be classified as operating cash flows because they enter into the
determination of net income or loss.

Alternatively, interest paid may be classified as financing cash flow because it is cost of obtaining financial
resources. Interest received may be classified as investing cash flow because it is a return on investment.

Cash flows from interest paid and interest received should be classified in a consistent manner from period to
period as either operating, investing or financing.
G. Dividends

Dividend received may be classified as operating cash flow because it enters into the determination of net
income.

Same as interest, the classification of dividend received and dividend paid as either operating, financing, or
investing activity should also be made in consistent basis from period to period.

H. Income taxes

Cash flows arising from income taxes should be separately disclosed and should be classified as cash flows
from operating activities unless they can be specifically identified with investing and financing activities.

I. Direct Method

Direct method means that the major classes of classes of gross cash receipts and gross cash payments
are disclosed. This method shows in detail or itemized the cash receipts and cash payments. The difference
between the cash receipts and cash payments represents the net cash flow from operating activities. In
essences, the direct method is the "cash basis" income statement.

J Basic formulas

Actually, the cash flow statement is a conversion from the accrual basis to the cash basis of accounting.
Accordingly, some formulas may be necessary for determining cash receipts and cash payments

a. Computation of collections

Trade accounts and notes receivable-beginning xx

Add: Sales xx
Total xx
Less: Trade accounts and notes receivable-end xx
Collection of accounts and notes receivable xx

b. Computation of payments to merchandise creditors

Trade accounts and notes payable-beginning xx

Add: Purchases xx
Total xx
Less: Trade accounts and notes payable-end xx
Payment to merchandise creditors xx

c. Computation of payments for expenses

Expenses xx
Add: Prepaid expense-end xx
Accrued expense-beginning xx
Total xx
Less: Prepaid expense-beginning xx
Accrued expense-end xx
Expenses paid xx
 d. Computation of collection of other income

Income other than sales xx

Add: Deferred income-end xx
Accrued income-beginning xx
Total xx
Less: Deferred income-beginning xx
Accrued income-end xx
Collection of other income xx

K. Illustration - Operating activities only

Sizzler Company shows the following comparative statement of financial position and income statement
for the year 2008 and 2007.
2016 2015
Assets
Cash $ 3,000,000 $ 2,000,000
Accounts receivable 940,000 350,000
Inventory 175,000 100,000
Prepaid insurance 15,000 20,000
Property, plant and equipment 2,000,000 2,000,000
Accumulated depreciation (550,000) (500,000)
Patent 40,000 50,000
Total assets $ 5,620,000 $ 4,020,000

Liabilities and Equity

Accounts payable $ 170,000 $ 150,000
Accrued salaries payable 25,000 10,000
Accrued interest payable 10,000 15,000
Income tax payable 350,000 250,000
Unearned rent income 10,000 40,000
Mortgage payable 500,000 500,000
Share capital 2,000,000 2,000,000
Retained earnings 2,555,000 1,055,000
Total liabilities and equity $ 5,620,000 $ 4,020,000
 Sizzler Company
Income Statement
For the year ended December 31, 2016

Sales $ 6,500,000
Cost of sales:
Inventory-January 1 100,000
Purchases 3,200,000
Goods available for sale 3,300,000
Inventory-December 31 (175,000)
Cost of goods sold 3,125,000
Gross income $ 3,375,000
Rent income 80,000
Total income $ 3,455,000
Expenses:
Salaries $ 950,000
insurance 40,000
Other expenses 500,000
Depreciation 50,000
Amortization of patent 10,000
Interest expense 55,000
Total expenses 1,605,000
Income before tax 1,850,000
income tax 350,000
Net income $ 1,500,000

Solution: Direct Method

The following computations are necessary under the direct method:

1. Collection from customers

Accounts receivable-2015 $ 350,000

Add: Sales 6,500,000
Total $ 6,850,000
Less: Accounts receivable-2016 940,000
Collections from customers $ 5,910,000

2. Collection of rent income

Rent income $ 80,000

Add: Unearned rent income-2016 10,000
Total $ 90,000
Less: Unearned rent income-2015 40,000
Rent income received $ 50,000

3. Payment to merchandise suppliers (creditors)

Accounts payable-2015 $ 150,000

Add: Purchases 3,200,000
Total $ 3,350,000
Less: Accounts payable-2016 170,000
Payments to merchandise suppliers (creditors) $ 3,180,000

4. Payments of salaries expense

Salaries $ 950,000
Add: Accrued salaries-2015 10,000
Total $ 960,000
 Less: Accrued salaries-2016 25,000
Salaries paid $ 935,000

5. Payment of insurance

Insurance $ 40,000
Add: Prepaid insurance-2016 15,000
Total $ 55,000
Less: Prepaid insurance-2015 20,000
Payment of insurance $ 35,000

6. Other expenses paid $ 500,000

7. Payment of interest

Interest expense $ 55,000

Add: Accrued interest payable-2015 15,000
Total $ 70,000
Less: Accrued interest payable-2016 10,000
Interest expense paid $ 60,000

8. Payment of income tax

Income tax $ 350,000

Add: Income tax payable-2015 250,000
Total $ 600,000
Less: Income tax payable-2016 350,000
$ 250,000

Therefore the cash flows from operating activities under the direct method would appear as follows:

Cash flows from operating activities:

Cash inflows:
From customers $ 5,910,000
From rent 50,000 $ 5,960,000
Cash outflows:
To merchandise creditors $ 3,180,000
To employees 935,000
For insurance 35,000
For other expense 500,000 4,650,000
Cash generated from operations 1,310,000
Interest paid $ 60,000
Income tax paid 250,000 310,000
Net cash provided by operating activities $ 1,000,000

Note: 1. Interest paid and income tax paid are separately disclosed.
2. Depreciation do not appear in the cash flow statement using direct method.
L. Indirect method

The indirect method means that the net income or loss is adjusted for the effects of transactions of a noncash
nature, any deferrals or accruals of the past or future operating cash receipts and payments, and items of
income or expense associated with investing and financing activities.

The indirect method of presenting cash flow from operations begins with the accrual basis net income and
applies a series of adjustments to convert the income to a cash basis.

The following general guidelines are offered for the adjustments of net income to cash basis:

1. All increases in trade noncash current assets are deducted from net income.
2. All decreases in trade noncash current assets are added from net income.
3. All increases in trade current liabilities are added to net income.
4. All decreases in trade current liabilities are deducted to net income.
5. Depreciation, amortization, and other noncash expenses are added back to net income to eliminate the
effect they had on net income.
6. Any gain on disposal of property is included in net income but it is a nonoperating item. Thus, this is
deducted from net income.
6. Any losses on disposal of property is deducted from net income but it is a nonoperating item. Thus, this is
added back to net income.

Solution: Indirect Method

Increase
2016 2015 (Decrease)

Accounts receivable $ 940,000 $ 350,000 590,000

Inventory 175,000 100,000 75,000
Prepaid insurance 15,000 20,000 (5,000)
Accounts payable 170,000 150,000 20,000
Accrued salaries payable 25,000 10,000 15,000
Accrued interest payable 10,000 15,000 (5,000)
Income tax payable 350,000 250,000 100,000
Unearned rent income 10,000 40,000 (30,000)

Therefore the cash flows from operating activities under the indirect method would appear as follows:

Cash flows from operating activities:

Net income $ 1,500,000

Changes in operating assets and liabilities:

Increase in accounts receivable (590,000)
Increase in inventory (75,000)
Decrease in prepaid insurance 5,000
Increase in accounts payable 20,000
Increase in accrued salaries payable 15,000
Decrease in accrued interest payable (5,000)
Increase in income tax payable 100,000
Decrease in unearned rent income (30,000)
Adjustments fro noncash effects:
Depreciation 50,000
Amortization of patent 10,000
$ 1,000,000

Note: It is to be mentioned that direct and indirect method are applicable only to operating activities.
An entity shall report separately major classes of gross cash receipts and gross cash payments
arising from investing and financing activities.
M. Comprehensive Illustration

The balance sheet accounts as of December 31, 2016 and 2015 of Acre Company and data relating
to activities during 2008 are presented below:

2016 2015

Cash and cash equivalent $ 600,000 $ 200,000

Accounts receivable, net 1,100,000 1,040,000
Notes receivable-trade 150,000 200,000
Inventory 1,200,000 1,360,000
Prepaid expense 110,000 120,000
Investment in equity securities, at cost 300,000 500,000
Plant, property and equipment 3,400,000 2,000,000
Accumulated depreciation (900,000) (600,000)
Patent 0 80,000
Total Assets $ 5,960,000 $ 4,900,000

Accounts payable $ 880,000 $ 840,000

Notes payable-trade 60,000 240,000
Accrued expenses 100,000 330,000
Note payable-bank (short term debt) 400,000 0
Share capital, $100 par 3,000,000 2,400,000
Share premium 530,000 400,000
Retained earnings 990,000 790,000
Treasury shares, at cost 0 (100,000)
$ 5,960,000 $ 4,900,000
Additional information:

a. The statement of retained earnings for the year ended December 31, 2008 shows the following:

Retained earnings-January 1 $ 790,000

Add: Net income 2016 1,000,000
Total $ 1,790,000
Less: Cash dividends paid 800,000
Retained earnings-December 31 $ 990,000

b. The company sold an investment in equity securities for $240,000 cash. There were no other transactions
affecting the investment in equity securities.
c. Land was purchased in 2016 for $1,200,000 paying $1,000,000 cash and issuing $200,000 share capital
at par value.
d. Equipment costing $200,000 and having a book value of $80,000 was sold for $60,000 cash.
e. Equipment of $400,000 was purchased for cash.
f. The company borrowed $400,000 from a bank to be paid in June 30, 2017.
g. Share capital with par value of $400,000 was issued for cash at a premium of $100,000.
h. The treasury share was reissued for $130,000 cash.
i. The patent was fully amortized.
Note: In determining cash receipts and cash payments, it is necessary to analyze all balance sheet accounts
with the exception of the cash and cash equivalents. The net changes in all balance sheet accounts
traced to their original entry. Accordingly, the preparation of the cash flow statement requires
reconstruction of original entries affecting balance sheet accounts.

1. Retained earnings, $200,000 increase

The statement of retained earnings shows net income of $1,000,000 and cash dividend paid of
$800,000, resulting to a net increase of $200,000.

With respect to net income, the original entry to close the same to retained earnings is:

a. Income Summary 1,000,000

Retained earnings 1,000,000

Note: The net income is the principal cash inflow from operations therefore the first item under
operating activities.

With respect to the cash dividend, the payment is recorded as:

b. Retained earnings 800,000

Cash 800,000

The transaction affects retained earnings, a shareholders' equity item. Therefore the payment of cash
dividend is shown under financing activities as deduction because it decreases cash.

2. Accounts receivable, $60,000 increase

The increase in accounts receivable is originally recorded as:

c. Accounts receivable 60,000

Sales 60,000

Note: The increase in accounts receivable increased net income but did not increase cash. Thus, the
increase in accounts receivable is deducted from net income under operating activities.

3. Notes receivable-trade, $50,000 decrease

The decrease in notes receivable-trade is originally recorded as:

d. Cash 50,000
Notes receivable-trade 50,000

Note: The decrease in notes receivable-trade increased cash but did not increase net income, thus, the
decrease in notes receivable is added to net income under operating activities.

4. Inventory, $160,000 decrease

The decrease in inventory is originally recorded as follows:

e. Cost of sales 160,000

Inventory 160,000

Note: The decrease in inventory increased cost of sales and subsequently decreased net income but
did not decrease cash. Thus, the decrease in inventory is added back to net income under
operating activities.

5. Prepaid expenses, $10,000 decrease

The decrease in prepaid expenses is originally recorded as:

 f. Expenses 10,000
Prepaid expenses 10,000

Note: The decrease in prepaid expenses increased expenses but consequently decrease net income, but did
not decrease cash. Thus the decrease in prepaid expenses is added to net income under operating
activities.

6. Investment in equity securities-$200,000 decrease

The decrease represents sale of securities for $240,000, or a gain of $40,000. (Additional information b)
The original entry is:

g. Cash 240,000
Investment in equity securities 200,000
Gain on sale of investment 40,000

Note: The transaction involves nonoperating asset. Therefore, the cash received from the sale is shown
under investing activities as an addition because it increases cash.

The gain on sale of investment is previously included in the determination of net income but this
is a nonoperating item, therefore, the gain is deducted from the net income under operating
activities.

7. Property, plant, and equipment, $1,400,000 increase

The company purchased land (additional information c) of $1,200,000 and equipment of $400,000.
(additional information e) and sold equipment costing $200,000 (additional information d), thus the
increase of $1,400,000.

The purchase of land is originally recorded as:

h. Land 1,200,000
Cash 1,000,000
Share capital 200,000

Note: The cash flow statement is strictly cash concept. Therefore, only the payment of $1,000,000 is
shown as a deduction under investing activities, because land is a nonoperating asset.

The issuance of share capital for the land is both a noncash investing and financing activity. This
is not shown in the statement because the transaction has no cash effect. The transaction is
simply disclosed.

The purchase of the equipment is recorded as follows:

i. Equipment 400,000
Cash 400,000

Note: The purchase of the equipment is shown as a deduction under investing activities because
the equipment is a nonoperating asset.
 The sale of the equipment is originally recorded as:

j. Cash 60,000
Accumulated depreciation 120,000
Loss on sale of equipment 20,000
Equipment 200,000

Note: The cash received from the sale of the equipment is shown as the addition under investing
activities because the equipment is a nonoperating asset.

The loss on sale of the equipment is previously deducted from the net income but this is a
nonoperating item, therefore, the loss is added back to net income under operating activities.

8. Accumulated depreciation, $300,000 increase

Balance-December 31, 2016 900,000

Add: Accumulated depreciation-sold equipment 120,000
Total 1,020,000
Less: Accumulated depreciation balance, December 31, 2015 600,000
Depreciation expense, 2016 $420,000

The depreciation for 2016 is $420,000, sold equipment, $120,000, therefore increase of $300,000.

The depreciation is originally recorded as:

k. Depreciation expense 420,000

Accumulated depreciation 420,000

Note: The depreciation is a non cash expense. It is added back to net income under operating
activities.

10. Patent, $80,000 decrease

The patent was amortized as follows:

l. Amortization of patent 80,000

Patent 80,000

Note: The amortization is a non cash expense. It is added back to net income under operating
activities.

11. Accounts payable, $40,000 increase

The increase in accounts payable is originally recorded as:

m. Purchases 40,000
Accounts payable 40,000

Note: The increase in accounts payable increased cost of sales and subsequently decrease net
income but did not decrease cash. Thus, increase in accounts payable is added to net income
under operating activities.
12. Notes payable-trade, $180,000 decrease

The decrease in notes payable is originally recorded as:

o. Notes payable-trade 180,000

Cash 180,000

Note: The decrease in notes payable decreased cash but did not decrease net income. Thus, decrease
in notes payable is deducted from net income under operating activities.

13. Accrued expenses, $230,000 decrease

The decrease in accrued expenses is originally recorded as;

p. Accrued expenses 230,000

Cash 230,000

Note: The decrease in accrued decreased cash but did not decrease net income. Thus, decrease
in accrued expenses is deducted from net income under operating activities.

14. Notes payable-bank, $400,000 increase

The increase in note payable-bank is due to borrowing (information f). It is originally recorded as:

q. Cash 400,000
Note payable-bank 400,000

Note: The cash received from note payable-bank is shown as an addition under financing activities
because the note payable-bank is a "nontrade" liability.

15. Share capital, $600,000 increase

The increase can be analyzed as follows:

Issued for land 200,000

Issued for cash 400,000
600,000
Note: The share for land is already accounted for (see letter h)

The issuance of the share capital with par value of $400,000 at a premium of $100,000 (information
g) is originally recorded as:

r. Cash 400,000
Share capital 400,000
Share premium 100,000

Note: The cash received from the issuance of the share capital is shown as an addition under financing
activities because the share capital is a shareholders' equity item.
16. Treasury shares, $100,000 decrease

The treasury share was reissued for $130,000 (information h) and recorded as:

s. Cash 130,000
Treasury share 100,000
Share premium 30,000

Note: The reissuance of the treasury shares is shown as an addition under financing activities because
treasury share is a shareholders' equity item.

17. Share premium, $130,000 increase

The increase is analyzed as follows:

From issuance of share capital 100,000

From sale of treasury share 30,000
130,000
Note: The increase in share premium is already accounted for. (see entries: r & s)

The cash effect are summarized as follows:

Operating Investing Financing

a Net income 1,000,000

b Payment of cash dividend (800,000)
c Increase in accounts receivable (60,000)
d Decrease in notes receivable-trade 50,000
e Decrease in inventory 160,000
f Decrease in prepaid expenses 10,000
g Sale of investment 240,000
Gain on sale of investment (40,000)
h Payment for land (1,000,000)
i Purchase of equipment (400,000)
j Sale of equipment 60,000
Loss on sale of equipment 20,000
k Depreciation 420,000
l Amortization of patent 80,000
m Increase in accounts payable 40,000
o Decrease in notes payable (180,000)
p Decrease in accrued expenses (230,000)
q Proceeds from bank note payable 400,000
r Issuance of share capital 500,000
s Reissuance of treasury shares 130,000
Net cash provided (used) 1,270,000 (1,100,000) 230,000
 ACRE Company
Statement of Cash Flows
For the year ended December 31, 2016
(In US Dollar)

Cash flows from Operating Activities:

Net income 1,000,000
Changes in operating assets and liabilities:
Increase in accounts receivable (60,000)
Decrease in notes receivable-trade 50,000
Decrease in inventory 160,000
Decrease in prepaid expenses 10,000
Increase in accounts payable 40,000
Decrease in notes payable (180,000)
Decrease in accrued expenses (230,000)
Adjustments to reconcile net income to net cash provided by
operating activities
Gain on sale of investment (40,000)
Loss on sale of equipment 20,000
Depreciation 420,000
Amortization of patent 80,000
Net cash provided by operating activities 1,270,000
Cash flows from Investing Activities:
Sale of investment 240,000
Payment for land (1,000,000)
Purchase of equipment (400,000)
Sale of equipment 60,000
Net cash used by investing activities (1,100,000)
Cash flows from Financing Activities:
Payment of cash dividend (800,000)
Proceeds from bank note payable 400,000
Issuance of share capital 500,000
Reissuance of treasury shares 130,000
Net cash provided by financing activities 230,000
Increase in cash and cash equivalents 400,000
Add: Cash and cash equivalents-January 1, 2016 200,000
Cash and cash equivalents-December 31, 2016 600,000

Note: 1 The indirect method is used in presenting the cash flow from operating activities
2 The cash balance of $600,000 on December 31, 2016 reconciles with the amount appearing on the
comparative balance sheet.
3 Actually, the cash flow statement explains in detail the increase and decrease in cash balance
LEARNING CHECK
1. Describe the purpose of the statement of cash flows. Of what purpose a cash flow
statement is prepared?

2. Identify the major classification of cash flows. Differentiate each.

3. Differentiate between net income and net cash flow from operating activities.

4. Contrast the direct and indirect methods of calculating net cash flow from
operating activities.

5. Explain the use of worksheet in preparing a statement of cash flows.

6. Name five common major classes of operating cash receipts or operating

cash payments presented on the statement of cash flows when the cash flows
from operating activities are reported by the direct method.
CASH FLOW STATEMENT
PROBLEMS

CF-1. Oakwood Company provided the following data for the current year:

Cash balance, beginning of year $ 1,300,000

Cash flow from financing activities 1,000,000
Total shareholders' equity, end of year 2,300,000
Cash flow from operating activities 400,000
Cash flow from investing activities -1,500,000
Total shareholders' equity, beginning of year 2,000,000

Required:
What is the cash balance at the end of the current year?

CF-2. The following information pertains to Lax Company during the current year:

Dividend received $ 500,000

Dividend paid 1,000,000
Cash received from customers 9,000,000
Proceeds from issuing share capital 1,500,000
Interest received 200,000
Proceeds from sale of long term investments 2,000,000
Cash paid to suppliers and employees 6,000,000
Interest paid on long term debt 400,000
Income tax paid 300,000
Cash balance, January 1 1,800,000

Required:
What is the net cash provided by operating activities for the current year using direct method?

CF-3. The following information was taken from the comparative financial statements of Champ Company
for the current year:

Net income for the current year $ 750,000

Sales revenue 4,500,000
Cost of goods sold (except for depreciation) 2,750,000
Depreciation expense 500,000
Amortization of intangible asset 200,000
Interest expense on short-term debt 300,000
Dividends declared and paid during the year 350,000
 Jan. 1 Dec. 31

Accounts receivable 220,000 150,000

Inventory 350,000 400,000
Accounts payable 475,000 520,000
Interest payable 100,000 85,000

Required:
Under the indirect method, how much should be reported as net cash flow from operating
activities.

CF-4. Royal Company provided the following data for the current year:

Sales $ 10,000,000
Cost of goods sold 5,300,000
Operating expenses 3,800,000

Dec. 31 Jan. 1

Prepaid operating expenses 1,000,000 700,000

Accounts payable 1,350,000 1,200,000
Inventory 2,500,000 2,100,000
Accounts receivable 1,400,000 1,375,000

Required:
How much cash was paid for purchases to be presented in the statement of cash flows for the
year using direct method?

CF-5. Data below were taken from the comparative trial balance of Miramar Company. The books are
kept on the accrual basis. Included in Miramar's expenses are depreciation of $200,000 and
amortization of $100,000.
2016 2015

Accounts receivable 4,500,000 5,000,000

Interest receivable 20,000 50,000
Inventories 8,000,000 9,000,000
Prepaid insurance 100,000 50,000
Accounts payable 7,500,000 7,000,000
Accrued expenses 500,000 300,000
Net sales 25,000,000
interest revenue 150,000
Cost of goods sold 15,000,000
Insurance expense 1,000,000
Other expenses 2,000,000

Required:
How much is the cash paid for expenses during the current year?

CF-6. Alpha Company had the following activities during the current year:

--Acquired 2,000 shares of Maybel Company for $2,600,000.

--Sold an investment in Rate Motors for $3,500,000 when the carrying value was $3,300,000.
--Acquired a $5,000,000, 4-year certificate of deposit from a bank. During the year, interest
of $375,000 was paid to Alpha.
 --Collected dividends for $120,000 on share investments.

Required:
Net cash used in investing activities.

CF-7. The following information has been compiled from the accounting records of Matthew Company
for the year ended December 31, 2016:

Purchase of inventory $ 1,950,000

Purchase of land, with vendor financing of $1,000,000 for 2 years 3,500,000
Purchase of plant for cash 2,500,000
Sale of plant:
Book value 500,000
Cash proceeds 400,000
Buyback of ordinary shares 700,000

Required:
What is the amount of investing net cash outflows that would be reported in the 2016 statement of
cash flows?

CF-8. The following information has been extracted from the accounting records of Nile Company at the
end of each year

2016 2015

Borrowings 2,500,000 800,000

Share capital 3,500,000 2,000,000
Retained earnings 950,000 750,000

Borrowings of $300,000 were repaid during 2016 and new borrowings include $200,000 vendor
financing arising on the acquisition of a property.

The movement in retained earnings comprises profit for 2016 of $900,000, net of dividends paid
of $700,000. The movement in share capital arose from issuance of share capital for cash during
the year. There were no dividends payable reported at the beginning and end of the current year.

Required:
What is the amount of financing net cash inflows that would be reported in the statement of
cash flows?
CF-9. Doris Day Company provided the following data:

2016 2015

Cash 300,000 200,000

Accounts receivable, net 840,000 580,000
Merchandise inventory 660,000 420,000
Prepaid expenses 100,000 50,000
Long-term investment 80,000 0
Property, plant and equipment 1,130,000 600,000
Accumulated depreciation 110,000 50,000
Accounts payable 530,000 440,000
Accrued expenses 140,000 130,000
Dividends payable 70,000 0
Note payable-long term debt 500,000 0
Share capital 1,200,000 900,000
Retained earnings 560,000 330,000
Net credit sales 6,400,000 4,000,000
Cost of goods sold 5,000,000 3,200,000
Expenses 1,000,000 520,000
Net income 400,000 280,000

All accounts receivable and accounts payable relate to trade merchandise. Accounts payable
are recorded net and always paid to take all of the discounts allowed. The allowance for doubtful
accounts at the end of 2016 was the same as at the end of 2015. No receivables were charged
against the allowance during 2016. The proceeds from the note payable were used to finance a
new store building. Share capital was sold to provide additional working capital.

Required:
Prepare the statement of cash flow in 2016.
A. Definition
Laporan arus kas adalah komponen dasar dari laporan keuangan
yang merangkum kegiatan operasi, investasi, dan pembiayaan suatu perusahaan.

Dalam bahasa yang sederhana, laporan arus kas memberikan informasi

tentang penerimaan kas dan pembayaran tunai suatu perusahaan selama periode tersebut.

B. Purpose of cash flow statement

Tujuan utama dari laporan arus kas adalah untuk memberikan informasi
yang relevan tentang penerimaan kas dan uang tunai
pembayaran suatu entitas selama suatu periode. Ini memberikan informasi
yang memungkinkan pengguna untuk mengevaluasi perubahan di internet
aset suatu entitas, struktur keuangannya, likuiditas dan solvabilitas.

C. Cash and cash equivalents

Laporan arus kas dirancang untuk memberikan informasi tentang perubahan dalam kas
perusahaan dan setara kas.

Uang tunai terdiri dari uang tunai dan giro.

Setara kas adalah investasi jangka pendek yang sangat likuid yang siap dikonversi
untuk mengetahui jumlah uang tunai dan yang memiliki risiko perubahan nilai yang tidak
signifikan.

Standar ini menetapkan bahwa investasi biasanya memenuhi syarat sebagai setara kas
hanya ketika kekurangan jatuh tempo tiga bulan atau kurang dari tanggal akuisisi.
Dengan kata lain, investasi harus diperoleh kurang dari tiga bulan sebelum tanggal jatuh
tempo. Ex. Tagihan treasury tiga bulan, deposito berjangka tiga bulan, instrumen pasar
uang tiga bulan

D. Classification of cash flows

a. Operating activities
Aktivitas operasi: adalah arus kas yang diperoleh terutama dari aktivitas
penghasil pendapatan utama entitas. Dengan kata lain, kegiatan operasi umumnya hasil
dari transaksi dan peristiwa lain yang masuk ke dalam penentuan laba atau rugi bersih.

Contoh:
a. Penerimaan kas dari penjualan barang dan layanan rendering
b. Penerimaan uang tunai dari royalti, biaya sewa, komisi dan pendapatan lainnya
c. Pembayaran tunai kepada pemasok untuk barang atau jasa
d. Pembayaran tunai untuk penjualan, administrasi dan pengeluaran lainnya
e. Penerimaan kas dan pembayaran tunai dari perusahaan asuransi untuk premi dan
anuitas klaim dan manfaat kebijakan lainnya
f. Pembayaran tunai atau pengembalian pajak penghasilan kecuali jika dapat
diidentifikasi secara spesifik kegiatan pendanaan dan investasi
g. Penerimaan dan pembayaran tunai untuk efek yang dimiliki untuk tujuan
diperdagangkan atau diperdagangkan.

note : Suatu entitas dapat memiliki efek dan pinjaman untuk keperluan transaksi
atau perdagangan, dalam hal ini mirip dengan persediaan yang diperoleh secara
khusus untuk dijual kembali. Oleh karena itu, arus kas yang timbul dari pembelian
dan penjualan surat berharga yang diperdagangkan atau diperdagangkan diklasifikasikan
sebagai aktivitas operasi.

b.. Aktivitas investasi:

arus kas yang berasal dari perolehan dan pelepasan aset jangka panjang
dan investasi lain yang tidak termasuk dalam kas yang setara . Secara sederhana, kegiatan
investasi termasuk arus kas dari transaksi yang melibatkan aset yang tidak beroperasi.

Contoh:
a. Pembayaran tunai untuk mendapatkan properti, pabrik, dan peralatan, barang
tidak berwujud dan aset jangka panjang lainnya
b. Penerimaan kas dari penjualan aset tetap, barang tak berwujud, dan jangka panjang lainnya
c. Pembayaran tunai untuk memperoleh ekuitas atau instrumen utang dari entitas lain
dan bunga bersama
d. Penerimaan kas dari penjualan ekuitas atau instrumen utang dari entitas lain dan
bunga bersama
e. Uang muka dan pinjaman kepada pihak lain (selain uang muka dan pinjaman yang
dilakukan oleh
f. Penerimaan uang tunai dari pembayaran uang muka dan pinjaman yang diberikan
kepada pihak lain.
g. Pembayaran tunai untuk kontrak masa depan, kontrak berjangka, kontrak opsi dan
kontrak swap.
h. Penerimaan kas untuk kontrak masa depan, kontrak berjangka, kontrak opsi dan
kontrak swap.

c. Financing activities
adalah arus kas yang diperoleh dari modal ekuitas dan pinjaman entitas. Dengan kata lain,
aktivitas pendanaan adalah arus kas yang dihasilkan dari transaksi antara entitas dan
pemiliknya (pembiayaan ekuitas) dan antara entitas dan kreditornya (pembiayaan utang).

Contoh:
a. Penerimaan kas dari penerbitan saham atau instrumen ekuitas lainnya (misalnya,
penerbitan saham biasa dan saham preferen)
b. Pembayaran tunai kepada pemilik untuk memperoleh dan menebus saham perusahaan
(misalnya, pembayaran untuk saham treasuri)
c. Penerimaan kas dari penerbitan surat utang, pinjaman, uang kertas, obligasi, hipotek,
dan pinjaman jangka pendek atau panjang lainnya.
d. Pembayaran tunai untuk jumlah yang dipinjam.
e. Pembayaran tunai oleh lessee untuk mengurangi kewajiban yang terkait dengan sewa
pembiayaan.
a. Akuisisi aset baik dengan mengasumsikan kewajiban terkait langsung atau
melalui sewa pembiayaan.
b. Akuisisi aset dengan cara mengeluarkan modal saham atau hutang obligasi.
c. Konversi hutang menjadi modal, misalnya konversi hutang obligasi menjadi modal saham.
d. Konversi saham preferensi menjadi saham biasa.
ode tersebut.
asifikasikan

ana, kegiatan

panjang lainnya

an kata lain,

perusahaan
modal saham.