Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Resource
Management
Kristin
A.
Militante
XXX
XXX
XXX
XXX
XXX
P
XXX
XXX
P
XXX
Income
Net
P 800,500
200,000
-50,000
A. Adding
back
depreciation
and
bad
debts
expense
to
net
income
In
making
the
cash
flow
statement,
we
are
concerned
with
transactions
involving
cash.
Note
that
before
we
arrived
at
net
income,
we
considered
the
revenues
and
expenses
of
the
business.
Net
income
is
not
always
equal
to
cash.
Some
expenses
do
not
involve
an
actual
cash-out.
Lets
take
depreciation
expense,
for
example.
The
journal
entry
to
recognize
depreciation
would
be:
Depreciation
Expense
35,000
Accumulated
Depreciation
Equipment
35,000
Was
there
an
actual
cash-out?
No.
As
seen
in
the
journal
entry,
we
did
not
credit
cash
(therefore,
no
decrease
in
cash).
Another
example
would
be
bad
debts
expense.
To
recognize
allotment
for
uncollectible
accounts
during
the
year,
the
journal
entry
would
be:
Bad
Debts
Expense
Allowance
for
Bad
Debts
1,000
1,000
2
Again,
there
was
no
actual
cash-out.
As
such,
we
need
add
these
two
accounts
back
to
net
income
to
recognize
the
reality
that
no
cash
was
used
when
these
expenses
were
incurred/recorded.
B. Adding
back
losses
/
subtracting
gains
on
sale
of
fixed
asset
to
net
income
Transactions
that
involve
selling
of
non-current
assets
would
fall
under
investing
activities.
At
this
point,
what
we
want
to
get
from
net
income
would
be
transactions
that
would
fall
under
operating
activities.
As
such,
we
add
back
the
loss
on
sale
on
fixed
asset
(since
it
was
previously
subtracted
from
revenue),
and
subtract
gains
on
sale
of
fixed
asset
(since
it
was
previously
added
to
revenue).
The
effect
on
the
sale
of
the
fixed
assets
would
be
taken
into
consideration
later
when
computing
for
the
net
cash
provided
by
(used
in)
investing
activities.
C. Subtracting
the
increase
in
current
assets
from
net
income
Consider
the
increase
in
accounts
receivable
in
the
table
below:
January
1,
2015
December
31,
2015
Accounts
Receivable
P
10,000
P
30,000
Accounts
receivable
increases
when
service
revenue
is
rendered
on
account.
The
journal
entry
for
this
transaction
is
as
follows:
Accounts
Receivable
20,000
Service
Revenue
20,000
Was
there
cash
received?
No.
However,
revenue
was
earned
because
the
service
was
already
rendered.
Because
of
this,
the
P20,000
contributed
to
net
income.
Remember
that
we
only
want
to
get
actual
cash
transactions
from
net
income.
Since
in
this
scenario
no
actual
cash
was
received,
we
subtract
the
increase
in
accounts
receivable
to
get
rid
of
the
portion
of
service
revenue
that
represents
service
rendered
on
account.
D. Adding
the
decrease
in
current
assets
to
net
income
Consider
the
increase
in
accounts
receivable
in
the
table
below:
January
1,
2015
December
31,
2015
Accounts
Receivable
P
15,000
P
10,000
Accounts
receivable
goes
down
when
the
business
collects
cash
from
the
customer.
To
illustrate,
the
journal
entry
is
as
follows:
Cash
5,000
Accounts
Receivable
5,000
Was
there
an
actual
increase
in
cash?
Yes.
Was
this
considered
in
the
income
statement
(reflected
in
the
net
income)?
No.
As
such,
we
need
to
add
the
decrease
in
accounts
receivable
to
net
income
to
take
into
consideration
the
transactions
that
fall
under
operating
activities.
E. Adding
back
the
increase
in
current
liabilities
to
net
income
January
1,
2015
December
31,
2015
Utilities
payable
P
0
P
12,000
For
the
utilities
payable
to
be
recorded,
there
must
be
at
least
one
account
that
was
debited.
In
this
case,
the
account
partnered
with
utilities
payable
is
utilities
expense.
Journal
entry
as
follows:
Utilities
Expense
12,000
Utilities
Payable
12,000
Utilities
expense
was
recorded
because
utilities
were
already
used
or
consumed
by
the
company
during
the
period.
However,
they
have
not
paid
actual
cash
yet
to
the
utility
companies.
For
this
reason,
a
liability
is
recorded
in
the
form
of
utilities
payable.
Was
there
an
inflow
or
an
outflow
of
cash
in
this
scenario?
No.
However,
utilities
expense
was
subtracted
from
revenues
when
the
net
income
of
P800,500
was
recorded.
Since
we
want
to
only
get
actual
cash
transactions
from
net
income,
we
add
back
the
increase
in
utilities
payable
amounting
to
P12,000
to
add
back
the
amount
previously
deducted
from
service
revenue
in
the
form
of
utilities
expense.
F. Subtracting
the
decrease
in
current
liabilities
from
net
income
January
1,
2015
December
31,
2015
Accounts
payable
P
5,800
P
0
Payables
decrease
when
we
pay
the
parties
we
owe
money
to.
These
could
be
the
suppliers,
utility
companies,
our
employees
or
financial
institutions.
In
this
case,
noticeably,
our
accounts
payable
decreased
by
P5,800.
Journal
entry
for
this
is
as
follows:
Accounts
Payable
5,800
Cash
5,800
Was
there
an
actual
cash-out?
Yes.
Was
this
considered
in
the
net
income?
No.
As
such,
we
need
to
add
the
decrease
in
the
accounts
payable
to
net
income
in
order
to
obtain
actual
cash
transactions
falling
under
operating
activities.