UNIVERSITY OF THE EAST

GRADUATE SCHOOL
Manila

FINANCIAL
STATEMENTS:
CASH FLOW
AND TAXES
GCT7102: Construction Accounting By: Gladys P. Francisco
and Financial Management

February 22, 2023

LEARNING OUTCOMES:
 Financial Statements
 Understanding Financial Statements
 Types of Financial Statements
 Taxes and Taxation
 Understanding Taxes
 Common Types of Taxes
 Taxes in the Philippines
 FINANCIAL STATEMENTS
Financial statements are written records that convey the
> business activities and the financial performance of a company.

> Financial statements are often audited by government

agencies, accountants, firms, etc. to ensure accuracy and for
tax, financing, or investing purposes.
Understanding Financial Statement
Investors and financial analysts rely on financial data
to analyze the performance of a company and make
predictions about the future direction of the company's
stock price.

One of the most important resources of reliable and

audited financial data is the annual report, which
contains the firm's financial statements.

The financial statements are used by investors, market

analysts, and creditors to evaluate a company's
financial health and earnings potential.
Annual report – are key marketing tools for investors
that companies put out, which includes illustrations, a
letter from the chair or CEO, and a financial overview
 Advantages and Disadvantages
Financial Statements are useful for the following reasons:
 To determine the ability of a business to generate cash and the sources and
uses of that cash.
 To determine whether a business has the capability to pay back its debts.
 To track financial results on a trend line to spot any looming profitability
issues.
 To derive financial ratios from the statements that can indicate the condition
of the business.
 To investigate the details of certain business transactions, as outlined in the
disclosures that accompany the statements.
 To use as the basis for an annual report, which is distributed to a company’s
investors and the investment
 Disadvantages of Financial Statements

 A possible concern is that they can be fraudulently manipulated, leading

investors to believe that the issuing entity has produced better results than
was really the case.

 manipulation can also lead a lender to issue debt to a business that cannot
realistically repay it.

 financial statements are entirely historical in nature, and so can be

misleading when used to project the future results of a business
Types of Financial Statements

1. Balance Sheet
2. Income Statement
3. Statement of Cash Flow
Types of Financial Statements

1. Balance Sheet
-provides an overview of assets, liabilities, and
shareholders’ equity (or owner’s equity) at a certain
point in time.

-the date is at the end of an accounting period for

financial reporting

-statement of Financial Position or Statement of

Financial Condition
 Balance Sheet Equation:

Assets = Liabilities + Equity

Company owns any debts your how much

(whether it’s cash, company has, value is left
equipment, land, whether it’s over
buildings, or bank loans,
intellectual mortgages,
property) unpaid bills,
IOUs

Very Important: Balance Sheet must balance!

Types of Financial Statements

2. INCOME STATEMENTS
-provides an overview of revenues,
expenses, and net income.
-sometimes called a “net income statement”,
“statement of earnings” or a “profit and loss
(P&L) statement.”
-shows you the company's income and
expenditures. It also shows whether a
company is making a profit or loss for a given
period.
Elements of an Income Statement
REVENUES
-The total amount of money that a company has made in a certain period.
-revenue earned by selling a company's products or services
-"top line" number since it is situated at the top of the income statement.

EXPENSES
-any costs incurred in the operation of a business to generate sales

NET INCOME
-Profit or Loss
-When a company’s expenses are higher than its revenue or sales, then the
difference will be tagged as a loss as it shows a negative figure.
 Net Income Equation:

Net Income (NI) = Revenues - Expenses

-net income includes – Sales of goods and -Operating expenses

all of the costs and services to customers Interest on debt and loans
expenses that a -Overhead or selling, general, and
company incurred – Interest income from administrative expense (SG&A)
which are subtracted investments -include the cost of goods sold
from revenue (COGS)
– Dividends from -depreciation or amortization
investments -research and development (R&D)
-employee wages
-sales commissions,
-utilities: electricity & transportation
Income Statement Document Example:

Net Income (NI) = Revenues -

Expenses
Types of Financial Statements

3. CASH FLOW STATEMENT (CFS)

 a financial statement that provides data regarding all cash inflows
that a company receives from its ongoing operations and external
investment sources.

 includes all cash outflows that pay for business activities and
investments during a given period.
Section of CFS
Cash Flows from Operating Activities (CFO)
Cash Flows from Investing (CFI)
Cash Flows from Financing (CFF)
Section of CFS

Cash Flows from Operating Activities (CFO)

 includes transactions from all operational business
activities

 begins with net income, then reconciles all non-

cash items to cash items involving operational
activities.

 In other words, it is the company’s net income, but

in a cash version.
 Section of CFS
Cash Flows from Operating Activities (CFO)
Two ways:
1. Indirect Method - the company begins with net income on an
accrual accounting basis and works backward to achieve a cash
basis figure for the period and revenue is recognized when earned,
not necessarily when cash is received

2. Direct Method - a company records all transactions on a cash

basis and displays the information on the cash flow statement
using actual cash inflows and outflows during the accounting
period.
Section of CFS
Cash Flows from Investing (CFI)
 the result of investment gains and losses
 includes cash spent on property, plants, and equipment
 is where analysts look to find changes in capital
expenditures (CapEx).

 when CapEx increases, it generally means there is a

reduction in cash flow
 Companies with high CapEx tend to be those that are
growing.
Section of CFS
Cash Flows from Financing (CFF)
 provides an overview of cash used in business financing
 It measures cash flow between a company and its owners and
its creditors, and its source is normally from debt or equity.
 a positive number means there is more money coming into the
company than flowing out
 a negative number means the company is paying off debt or is
making dividend payments and/or stock buybacks (buying
back its stock)
Cash Flows from Financing (CFF)
Items that may be included in the financing activities line item are:

POSITIVE CASH FLOW:

Sales of Stock

Issuance of debt, such as bonds

Donor contributions restricted to long-term use

NEGATIVE CASH FLOW:

Repurchase of company stock

Repayment of debt

Payment of dividends
Cash Flow Statement Example:

Net Cash Flow = Net Operations Cash + Net Investment

Cash Activity + Net Financial Activity
CASH FLOW PROBLEMS
What is a Cash Flow Problem?
 when the amount of money flowing
into a business doesn’t meet the
requirements for accounts payable

 Outflows exceed inflows

Symptoms of Company Cash Flow Problems
 Seasonal fluctuations in sales
 A failure to send invoices out and collect customer payments on
time
 An over-reliance on a small number of customers
 Holding too much stock
 Low-profit margins
 Growing too quickly and putting pressure on short-term finance
 A funding facility that does not meet the business’s changing
needs
 Poor financial planning
 An undisciplined approach to spending
 High overheads such as rent and utilities
 Bad debts
 Poor credit control procedures and credit checks
6 Ways to Solve Company
Cash Flow Problems
1 Access a flexible line of credit
2 Audit your Finances
3 Create Cash Flow Forecasts
4 Negotiate Favourable Credit
Terms with your Suppliers
5 Prioritise Credit Control
6 Invoice Quickly and Accurately
What are Taxes?
-Mandatory payments are
collected from individuals
and corporations by a
government entity to fund
government activity.

-whether local, regional, or

national
 TAXATION
- is the practice of collecting
taxes (money) from citizens
based on their earnings and
property.
Understanding Taxes
-To help fund public works and services and to
build and maintain the infrastructure used in a
country
-The tax collected is used for the betterment of the
economy and all who are living in it.
-A tax requires a percentage of the taxpayer’s
earnings or money to be taken and remitted to the
government
-Payment of taxes at rates levied by the
government is compulsory, and tax evasion is
punishable by law.
 DISTINCTION OF TAX

Tax distinguished from Toll

- A tax is a demand for sovereignty, while a toll is a demand for proprietorship.
- A tax is paid for the use of the government’s property, while a toll is paid for the
use of another’s property.
- A tax may be imposed by the government only, while a toll is enforced by the
government or a private individual or entity.
Tax distinguished from Penalty
- A tax is intended to raise revenue, while a penalty is designed to regulate
conduct.
- A tax may be imposed by the government only while a penalty may be imposed
by the government or a private individual
 DISTINCTION OF TAX

Tax distinguished from Debt

- A tax is based on law, while debt is based on contract.
- A tax may not be assignable, while debt is assignable.
- A person may be imprisoned for non-payment of taxes, but any person
may not be imprisoned for nonpayment of debt.
CLASSIFICATION OF TAXES
 Direct Tax is one that the taxpayer pays
directly to the government, such as income
tax, poll tax, land tax, and personal property
tax. These taxes cannot be shifted to any
other person or group.

 Indirect Tax is one that can be passed on-or

shifted-to another person or group by the
person or business that owes it.
charged on goods and services, such as
sales tax, excise tax, value-added taxes, and
gross receipts tax.
Common Types of Taxes
• Income tax
• Payroll tax
• Corporate tax
• Sales tax
• Property tax
• Tariff
• Estate tax
 COMMON TYPES OF TAXES
INCOME A percentage of generated income that is
TAX relinquished to the state or federal government

A percentage withheld from an employee’s pay by

PAYROLL an employer who pays it to the government on the
TAX employee’s behalf to fund Medicare and Social
Security programs

CORPORATE A percentage of corporate profits taken as tax by

TAX the government to fund federal programs
 COMMON TYPES OF TAXES
Taxes levied on certain goods and services; varies by
SALES TAX
jurisdiction

PROPERTY
Based on the value of land and property assets
TAX

TARIFF Taxes on imported goods

ESTATE Rate applied to the fair market value (FMV) of property in a

TAX person’s estate at the time of death
TAXES IN THE
PHILIPPINES
 2 – Scope of Taxes In The Philippines
1. National Taxes 2. Local Taxes
refer to mandatory imposed by the local
contributions under the government of an area
National Internal under the Local
Revenue Code of Government Code of
1997, imposed and 1991, such as real
collected by the Bureau property tax and the
of Internal Revenue community tax (formerly
(BIR) residence tax).
Taxes Under Philippine National Taxes

1. Capital Gains Tax

2. Documentary Stamp Tax
3. Donor’s Tax
4. Estate Tax
5. Income Tax
6. Percentage Tax
7. Value-Added Tax
8. Withholding Tax
9. Excise Tax
 Taxes Under Philippine National Taxes
1. Capital Gains Tax is imposed on a seller or a business when they sell a valuable
asset like jewelry, stocks, properties, and other goods considered capital assets or
items of high value.

2. Documentary Stamp Tax Documentary tax is a tax imposed on contracts,

agreements, certificates, acceptance, sale, assignment, and other legal documents to
prove that a transaction between two parties occurred.

3. Donor’s Tax is imposed on a gift, donation, or any free-of-charge transfer from

benefactor to recipients.

4. Estate Tax is charged when a real estate owner passes away, and their lawful
beneficiaries decide to transfer land titles to their name at the owner’s time of death.
 Taxes Under Philippine National Taxes
5. Income Tax is imposed on individuals from their source of living, whether it’s a
profession, business, trade, or property.

6. Percentage Tax is a business tax imposed on business owners who sell or lease
goods, services, properties, or services that are not VAT-registered and has a minimum
yearly gross sale of PHP 550,000.

7. Value Added Tax imposed and collected from the seller in the course of trade or
business on every sale of properties (real or personal) lease of goods or properties (real
or personal) or vendors of services.
Taxes Under Philippine National Taxes

8. Withholding Tax the amount withheld from an employee’s wage

and paid directly to the government for the employee’s partial income
tax is referred to as withholding tax.

9. Excise Tax is imposed on goods and products under the Tax

Reform for Acceleration and Inclusion Law or TRAIN Law
Taxes Under Philippine Local Taxes
1. Franchise Tax
2. Basic Real Property Tax
3. Sand, Gravel, And Other Quarry Resources Tax
4. Business Of Printing And Publication Tax
5. Annual Fixed Tax For Delivery Trucks And Vans
6. Professional Tax
7. Amusement Tax
8. Community Tax
9. Barangay Tax
Taxes Under Philippine Local Taxes
1. Franchise Tax is imposed on franchise businesses.

2. Basic Real Property Tax is imposed on agricultural, commercial,

industrial, mineral, and residential properties.

3. Sand, Gravel, And Other Quarry Resources Tax LGUs can only
charge up to 10% of the fair market value per cubic meter of quarry resources
like gravel, sand, common stones, earth, and sand taken from public lands or
waters.

4. Business Of Printing And Publication Tax published or printed,

these taxes are also taken out of books, posters, pamphlets, cards, tarps, and
other printed items.
Taxes Under Philippine Local Taxes
5. Annual Fixed Tax For Delivery Trucks And Vans This tax
amounts to Php500.00 and is collected from trucks and vans that transport goods
from one place to another.

6. Professional Tax imposed on lawyers, doctors, architects, or any other

profession that requires a board exam or licensure from the government.

7. Amusement Tax imposed on films, theatrical plays, concerts, or any

entertainment show.

8. Community Tax is known as cedula.

9. Barangay Tax Small businesses like sari-sari stores with a gross sale of
PHP 50,000 annually have to pay barangay tax.
THANK YOU!
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