Learning Module in

Business Finance 12
Quarter 1, Week 1
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Topic:
Task Analysis:
A. Code:
B. Learning Outcomes: At the end of the lesson, students will be able to:
a. Define flow of funds;
b. Explain the flow of funds within an organization through and from the
enterprise and the role the financial manager.

Good Day Learners!

In our previous, topic we discussed about the financial

institution from financial instrument and financial
market. Now you can answer the questions: “What are
they?”, “What is their role in the business?” and “How
can they help the business in generating more funds for
the business?”

In this module, you will learn how to explain the flow of

funds within an organization – through and from the
enterprise—and the role of the financial manager.

Let us start!

Assets Liability

Account name Current Non-Current Current Non-Current

Accounts Recievable
Accrued expenses.
Accumulated Depreciation- Furniture
Allowance for Doubtful Accounts
Deferred tax liabilities
Pension benefit obligations.
Photocopying Equipment
Short-term loans.

Guide task:
1. Identify the account name and classify them according to type.
2. Put check on the box provided.
3. Determine if it is a Current or Non-Current Asset
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Let us recall your major accounts. What are current

and non-current assets and liabilities?

Well said! The classification of assets and liabilities has a

great impact to the flow of funds in the business.

This time, kindly perform the next activity.

Same as true with the current

liabilities, if the liability collected
The Current assets are those assets and paid within one year it is
that can be collected and current, otherwise it is considered
consumed within one year, as non-current.
otherwise it is considered as non-
current.

1. Cash paid in full to creditors Php. 10,000 on June 15, 2019. The borrowed money
was acquired 2 years ago.
2. Purchase of Plant and Machinery from M/s. Anand & Co., on credit Php.75,000
on June 20, 2019. Payable in 18 months.

General Journal
Date Particulars and Explanation Ref Debit Credit

Guide questions:

1. What is the journal entry of each transaction?

2. What type of account is involved in the transaction?
3. Is the account involved current or not?
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What is the journal entry for transaction1?

How about the journal entry for transaction 2?

That’s right! And take note that in every

transaction it has effect on at least one major
account.

With that, the flow of funds is dependent on this

effect most especially on the working capital.

The journal entry for

Very well no.2
transaction said!is debit Plant
Debit cash of Php.
10,000 and credit and Machinery of Php. 75,000
Accounts Payable of and account payable for
Php. 10,000. 75,000.

Now, what accounts are involved in the

working capital?

Very good! And again, flow of funds is

dependent on the movement of these
accounts.

Do you understand?

Yes. Miss Fina.

Working capital is affected by

current liabilities and the current
assets.
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Flow means movement. The term movement includes inflow and outflow. Here, FLOW
OF FUNDS means transfer of economic values from one asset of equity to another. In
other words, flow of funds refers to movement of funds in the working capital.

A business transaction may bring a change in working capital either in the form of
decrease or increase. If there is change in current assets and current liabilities in the
same direction and by the same amount, there will be change only in their amount but
no change in the working capital. Hence, there is no flow of fund in such type of
transaction.

In simple words, there is a flow of funds if a transaction affects a current asset and a
non-current asset or a non-current and a current liability or a current asset and a non-
current liability or a non-current liability and current liability.

Based on our previous activity, we journalized the

transaction:

Accounts Payable Php 10,000

Cash Php 10,000

Based on this journal entry, what are the accounts

involved? Is it current or not?

Correct! The classification of the accounts

involved will help us determine if there is a flow
of fund of there is not.
The accounts
payable is non-
current liability
because it is was
Accounts Payable acquired 2 years
is Liability and ago.
Cash is an Asset.

The cash Miss is a

current asset.
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Based on transaction number 1, is

there a flow of funds?

Exactly! As a rule, if one

account is current and the
other one is non-current,
there is definitely a flow of
funds.
Transaction 1 involves
a current asset and a Understood?
non-current liability.
Therefore, Yes, it has
flow of funds. Yes! Miss Fina.

I agree with him,

Miss!

How about the second transaction? Let us analyze. What

are the accounts involved?

Very good! What are their classification? Is the asset current

or not? How about the liability?

That is correct! On that note, Is there a flow of funds?

Excellent!

The asset is non-current since it

is a fixed asset and the liability is
also non-current because it is There is no flow of
payable in 18 months. funds. Because both
of them are non-
Accounts payable current.
which is a liability.

Property, Plant and

Equipment which an
asset.
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If both accounts are current in nature, there is no flow of funds.

If both accounts are non-current in nature, there is no flow of funds.

If one account is current in nature and another account is non-current in nature,

there is a flow of funds.

DIAGRAM SHOWING OF FLOW FUNDS

Current Current
Assets Liabilities

Non-Current Non – Current

Assets Liabilities

Take note class in the diagram above the straight

line signify that there is flow of funds while the
broken line signifies no flow of funds.

Do you understand?

Get ready to take the quiz!

Yes Miss! Yes Miss! Yes Miss! Yes Miss!

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I. Analyze the transactions below and perform the following:

1. Write the accounts involved in every transaction.
2. Write in the account type (current asset /non-current asset/ current
liabilities/ non-current liabilities)
3. On the effect write with flow of funds or without flow of funds.
4. Explain why there is or no flow of funds.

ACCOUNTS INVOLVED ACCOUNT TYPE EFFECT EXPLANATION

Example:
The Company purchased Php 2,000 equipment and paid in cash.
ACCOUNTS INVOLVED ACCOUNT TYPE EFFECT EXPLANATION
EQUIPMENT NON-CURRENT ASSET WITH FLOW OF COMPOSED OF CURRENT
1
CASH CURRENT ASSET FUNDS AND NON-CURRENT ASSET

Transactions
1. Mia purchased computer set to be used in her work from home on account
payable in two years at an amount of P2,000.
2. The company purchased P6,000 merchandise (600 units) on credit.
3. The company borrowed P20,000 from a bank for three yrs.
4. Received a 60-day, 12% note with principal amount of P5,500 FROM Andres Cruz.
5. Alice photocopying center paid rent for two months amounting to P10,000.

1. How would you relate the role of financial managers, role of financial markets
and role of investors, in the flow of funds in the business?

Role of Financial Role of Financial Role of Investors

Managers Markets
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Online References:
• https://corporatefinanceinstitute.com. Retrieved on July 7, 2020
• https://www.vectorstock.com/. Retrieved on July 6, 2020
• https://www.needpix.com/photo/. Retrieved on July 6, 2020
• https://www.kissclipart.com/. Retrieved on July 6, 2020
• https://www.inspizone.com/. Retrieved on July 6, 2020
• https://www.onlinewebfonts.com/. Retrieved on July 7, 2020
• https://accountlearning.com /.Retrieved on July 7, 2020
• https://courses.lumenlearning.com/.Retrieved on July 7, 2020

Book References:
• Teaching Guide for Senior High School BUSINESS FINANCE – Published by
Commission on Higher Education, 2016 ©, Chairperson: P.B. Licuanan, Ph. D.
• Business Finance for Senior High School, De Guzman, A.A., (2019), Lorimar
Publishing, Inc.
• Business Finance in the Philippine Setting for Senior High School, Aduana, N.L.,
(2017), C&E Publishing, Inc.

Assessment:
ACCOUNTS INVOLVED ACCOUNT TYPE EFFECT EXPLANATION
COMPUTER SET NON-CURRENT ASSET NO FLOW OF BOTH ARE NON-CURRENT
1
ACCOUNTS PAYABLE NON-CURRENT LIABILITY FUNDS ACCOUNT
MERCHANDISE CURRENT ASSET CURRENT ASSET AND NON-
2
ACCOUNTS PAYABLE NON-CURRENT LIABILITY FLOW OF FUNDS CURRENT LIABILTY
BANK LOAN NON-CURRENT LIABILITY NON- CURRENT LIABILTY
3
CASH CURRENT ASSET FLOW OF FUNDS ANDCURRENT ASSET
NOTE RECEIVABLE CURRENT ASSET NO FLOW OF BOTH ARE CURRENT
4
CASH CURRENT ASSET FUNDS ACCOUNT
AN EXPENSE ACCOUNT IS
RENT EXPENSE EXPENSE NO FLOW OF NOT PART WORKING
5
CASH CURRENT ASSET FUNDS CAPITAL

Enrichment

Role of Financial Role of Financial Markets Role of Investors

Managers
Financial managers make The financial markets provide Investor provide the funds
financing decisions that a forum in which firms can that are to be used by
require funding from investors issue securities to obtain the financial managers to
in the financial markets. funds that they need and in financial corporate growth.
which investors can purchase
securities to invest their funds.
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CONGRATULATIONS!! You are done with

your Module 2 in Business Finance!
Looking forward to see you on the next
lessons!

What have you learned?