FABM REVIEWER

ABM 12-03 || JIMENEZ To prepare a cash flow statement using the

direct method, you'll need to rely on cash
receipts and other documentation to find out
FINANCIAL PLAN: when payment exchanged hands. It creates
a straightforward, reader-friendly document
-The illustrated sales forecast and operating with a list of cash receipts and payments.
budget will then be transferred to the Total cash payments are subtracted from
projected income statement, which total cash receipts to arrive at net cash flow.
summarizes the profit or (loss) the company
expects to generate within the year. Cash flow direct method example
While the specific cash flow direct method
-This income statement also includes an format might vary, it's usually a simple list of
estimate of the cost of goods sold, which, as payments and receipts. Items associated
shown in the Table is assumed to be 40% with operational cash flows include things
of total sales per month. like:
* Employee salaries
* Cash paid to suppliers and vendors
Cash flow: * Cash received from customers
* Income received from interest and
-Cash flow is the movement of money in dividends
and out of a company. * Tax and interest payments
Cash received signifies inflows, and cash
spent is outflows. The cash flow statement ACCOUNTING BOOKS: JOURNAL &
is a financial statement that reports a LEDGER
company's sources and use of cash over
time. -The journal is a chronological record
(day-by-day) of business transactions. It is
Types of Cash Flow called the book of original because it is the
* Operating cash flow: This refers to the net accounting record in which financial
cash generated from a company's normal transactions are first recorded.
business operations. In actively growing and The ledger refers to the accounting book in
expanding companies, positive cash flow is which the accounts and their related
required to maintain business growth. amounts as recorded in the journal are
* Investing cash flow: This refers to the net posted to periodically. The ledger is also
cash generated from a company's called the "book of final entry" because all
investment-related activities, such as the balances in the ledger are used in the
investments in securities, the purchase of preparation of financial statements.
physical assets like equipment or property, This is also referred to as the T-Account
or the sale of assets. In healthy companies because the basic form of a ledger is like
that are actively investing in their the letter "T".
businesses, this number will often be in the
negative. Many businesses maintain several types of
* Financing cash flow: This refers journals. The nature of the business
specifically to how cash moves between a operations and the volume of transactions
company and its investors, owners, or determine the type and number of journals
creditors. Its the net cash generated to needed. The simplest type of journal is
finance the company and may include debt, called the general journal. The process of
equity, and dividend payments. recording a transaction is called journalizing
the transactions. This type of journal is
The direct cash flow method uses real cash unique among journals because it may be
inflows and outflows taken directly from used to record any type of business
company operations. This means it transactions. Recording all transactions in
measures cash as its received or paid, the general joural is not cost effective and
rather than using the accrual accounting time consuming. To speed up and simplity
method. the recording process, most businesses
Accrual accounting recognises revenue as make use of special journals. Each special
it's earned, rather than when you receive journal is designed to record a particular
payment. type of transaction efficiently and quickly.
Examples of special journals and their use staff to have a long-term record of the
are the following: inventory and also keeps the business from
growing out of a periodic system one day. A
3. Can Decute onta-i usure or el crad thars perpetual system can scale, so whether you
hoseing cash payments. have five products (today) or 200 products
c. Sales Joumal (Sales on Account Joumal) (tomorrow), a perpetual system can
- is used to record all sales on credit (on effectively manage inventory control.
account) | Purchase Journal (Purchase on
Account Journal) - is used to record all BASIC BANKING DOCUMENTS AND
purchases of inventory on credit TRANSACTIONS:

* The journal shows all information Savings Accounts

concerning a particular transaction. * These are intended to provide an incentive
* The journal provides a chronological for the depositor to save money.
record of all the financial events in the * The depositor can make deposits and
business over time. If we want to know withdrawals using the form provided by the
about a certain transactions of years or bank.
months back, we can trace the said * Banks usually pay an interest rate that is
transactions as long as we have the date of higher than a checking account or a current
the said transaction. The entries in the account.
journal are arranged by date that makes it * Some savings accounts have a passbook,
necessary to locate a particular event. in which transactions are logged in a small
booklet that the depositor keep
What Is a Perpetual Inventory System? * Some savings accounts charge a fee if the
balance falls below a specified minimum
-A perpetual inventory system is a software
system that continuously collects data about Checking or Current Accounts
a company's products. * Money held under a checking account can
A perpetual system tracks every transaction be withdrawn through issuance of a check
as it happens, including purchases and * Banks usually allows numerous
sales. The system also tracks all information withdrawals and unlimited deposit under this
pertinent to the product, such as its physical type of account.
dimensions and its storage location. * The interest rate for checking account is
A perpetual system is more sophisticated usually lower as compared to a savings
and detailed than a periodic system account.
because it maintains a constant record of * The account holder or depositor of a
the inventory and updates this record checking account is normally provided at
instantaneously from the point of sale the end of the month a bank statement
(POS). However, perpetual systems require showing all the deposits made, checks paid
your staff to perform regular recordkeeping. by the bank, and the balance of the
For example, in a periodic system, when account.
you receive a new pallet of goods, you may * The depositor is given easy access to the
not count them and enter them into stock funds as compared to a savings account.
until the next physical count. In a perpetual
system, you immediately enter the new A withdrawal slip and deposit slip are written
pallet in the software so the system can orders to the bank. These slips are used to
track its life in your business. When there is take out money or to put in money to the
a loss, theft or breakage, you should also depositors account.
immediately record these updates. Withdrawal Slip
According to Relph, "When an organization Without a withdrawal slip, the bank will not
grows such that all items require a SKU allow you to get money from your account.
(e.g. internet sales), then it is highly likely The required information in the withdrawal
this business will need to move towards a slip are:
perpetual inventory system." • Account Name - the name of the depositor
A perpetual system is superior to a periodic
system in many ways, especially for * Account Number - the unique identifier
companies that are considering their given by the bank for every account
longevity. Implementing a perpetual system maintained
earlier in the company's inception enables * Date of the withdrawal
* Type of account - savings or current Fund) or DAUD (Drawn Against Uncleared
* Currency| Deposits)
* Amount to be withdrawn - the amount that
the depositor wishes to withdraw from his Cross Check
account.The amounts in words and in It is marked to specify an instruction about
figures are indicated. the way it is to be redeemed. A common
* Signature of the Depositor - this is the instruction is to specify that it must be
most important part in the withdrawal slip. deposited directly into an account of the
The signature is a proof that the depositor is payce. It is usually done by writing two
authorizing the bank to get money from his parallel lines on the upper left portion of the
account. Usually, the bank compares the check. A cross check cannot be encashed
signature in the withdrawal slip against the over the counter by the payee. It should be
signature in the bank records submitted deposited to the payees account.
during the opening of the account. Show the learner an example of a cross
check.
Deposit Slip
The bank provides deposit slip that the Stale Check
depositor will fill up every time the depositor A cheque which a bank will not accept and
will put in money to his account. The usually exchange for money or payment because it
required information in a deposit slip are: was written more than a certain number of
* Account Name - this is the complete name months ago. In the Philippines a check
of the depositor that is reflected in the becomes stale if it exceed 6 months from
records of the bank. If it has a pass book, the date of the check.
the account name is indicated on first page
inside the passbook. * Time lags that prevent one of the parties
* Account Number - this is a unique (company or the bank) from recording the
identifier of the account maintained by the transaction in the same period as the other
depositor. party.Example: A bank statement that ends
* Date of Deposit January 30, 2015 and then the company
* Type of Account were able to collect cash of P20,000 at 5:00
* Currency PM. Bank usually loses at 3:00 PM because
* Amount in words and in figures - the of this, the cash collected will not be
amount that the depositor wishes to put into reflected in the bank as deposit but it is
his account. The amount to be deposited however recorded in. accounting records of
maybe in form of cash or check. If it is a the company.
cash deposit, the breakdown of the cash is * Errors by either party in recording
usually listed in the deposit slip if it is a transactions
check deposit, the details of the checks are Example: A check was issued to Meralco by
indicated in the deposit slip, for example: the company amounting to P1000. The
Issuing Bank, Address of the Issuing Bank, company recorded this as P100. When the
date of the check and the amount. check was presented, the bank paid
Meralco P1,000. In the records of the
* DRAWEE - bank company it was P100 while in the records of
* DRAWER - accountholder the bank it's P1,000.
There is in this case an error that will cause
* Collection of cash proceeds from notes the difference between the company's
receivables. records and the bank records.
* Interest income earned by the deposit.
Ocotandingale not rechecke that bank
* Bank service charge - monthly fee becomit pand recorded in the by happy ash
charged by the bank for its services (Ex. Song the ording che ow day of the month
cost of printing checks writing funds to other plus few older check so loy bo.
locations and other fees) alounting to 200. Thick: then reard 0 a nis
* NSF - (Not Sufficient Fund) - Banks also ood shocked ion to his
use a debit memorandum when a deposited cash. It so happen that the bank was closed
check from a customer "bounces" because on that day and Maria was able to visit the
of insufficient funds. Nowadays bank refer bank and have it encashed on February 1,
to this as DAIF (Drawn Against Insufficient 2015 only. In the bank statement received
by Juan from his bank ending
January30,2015, the P2,000 check was not
deducted however it was already deducted
in the books of Juan on January 29, 2015.
The P2,000 check is called an outstanding
check.

Bank errors are mistakes made by the bank.

Bank errors could include the bank
recording an incorrect amount, entering an
amount that does not belong on a
company's bank statement, or omitting an
amount from a company's bank
statement.The company should notify the
bank of its errors. Depending on the error,
the correction could increase or decrease
the balance shown on the bank
statement.Since the company did not make
the error, the company's records are not
changed.

NSF check is a check that was not honored

by the bank of the person or company
writing the check because that account did
not have a sufficient balance. As a result,
the check is returned without being honored
or paid.
NSF is the acronym for not sufficient funds.
When the NSF check comes back to the
bank in which it was deposited, the bank will
decrease the checking account of the
company that had deposited the check. The
amount charged will be the amount of the
check plus a bank fee.
Because the NSF check and the related
bank fee have already been deducted on
the bank statement, there is no need to
adjust the balance per the bank. However, if
the company has not yet decreased its
Cash account balance for the retumed
check and the bank fee, the company must
decrease the balance per books in order to
reconcile.
• Check printing charges occur when a
company arranges for its bank to handle the
reordering of its checks. The cost of the
printed checks will automatically be
deducted from the company's checking
account.