1. Chapter 7
Cash Flow Statements

2. Overview
The Corporations Act requires that public companies publish a Cash Flow Statement.
The requirements of the Cash Flow Statement are set down in detail by AASB 107, Cash Flow Statements.

3. Corporations Act 2001 Provisions Relating to Financial Statements
7.1
Corporations Act 2001 Provisions Relating to Financial Statements

4. Corporations Act S292
Section 292 provides that a reporting entity must prepare general purpose financial reports.

5. Corporations Act S296 and S297
Section 296 states that financial reports must be prepared according to the AASB Standards.
Section 297 requires that reports must be fair and true assessments.

6. AASB 107 Cash Flow Statements
AASB107, Cash Flow Statements requires a Cash Flow Statement to be disclosed in general purpose financial reports.

7. Cash Flow Statement Defined
A summary statement of all receipts and payments of cash by a business for a reporting period.

8. Cash Flow Statement Defined - Continued
The Statement is divided into functional groupings of:
It also identifies the cash funds position of the business at the end of the reporting period.
Operating Activities
Investing Activities
Financing Activities

9. Need for Cash Flow Statements
A Cash Flow Statement provides readers of the financial reports with a summary of a change in cash funds from beginning to end of the period.

10. What are Cash Funds? Cash Funds consist of cash and cash equivalents.
Cash consists of :
that are used in the day-to-day cash transactions of the business.
Cash on hand
Cash in bank accounts
Petty Cash

11. Money-market deposits
Cash Equivalents
Cash Equivalents are investments that are readily convertible to cash at the investor's option.
These will include :
Transfers between cash and cash equivalents do not need to be reported.
At-call deposits
Bank overdraft
Money-market deposits
Bank bills

12. Profits v Cash
The making of profits by a business does not necessarily translate into an increase in cash funds at the end of the reporting period.
For example:
Depreciation, accrued revenues and accrued expenses are non-cash but included in profit calculation.

13. Format of a Cash Flow Statement
7.2
Format of a Cash Flow Statement

14. Format of a Cash Flow Statement

15. Format of a Cash Flow Statement Continued

16. Elements of a Cash Flow Statement
7.3
Elements of a Cash Flow Statement

17. Elements of a Cash Flow Statement
Information is presented under:
Operating activities
Investing activities
Financing activities

18. Operating Activities
Operating activities are those cash items which are reflected in the profit or loss for the reporting period.
i.e. cash transactions associated with:
The provision of goods or services.
Payments to employees.
Payments of interest and income tax.
Receipts of cash dividends and interest.

19. Operating Activities
Cash will be received from customers directly by a cash sale or from accounts receivable.
Payments will be made to the suppliers of goods and other payables.

20. Operating Activities The cash amounts will be determined by:
items in the Income Statement and current assets and current liabilities in the balance sheet.

21. Investing Activities
Investing activities relate to the acquisition or disposal of non-current assets such as the cash purchase or cash sale of property, plant and equipment.

22. Financing Activities Proceeds from borrowings Issue of share capital
Financing activities are those cash items affecting shareholders equity and external borrowings.
Examples:
Issue of share capital
Proceeds from borrowings
Repayment of borrowings
Dividends paid

23. Financing Activities
Cash inflows and outflows from Operating, Investing and Financing activities, determine the net increase/decrease in cash funds for the period.
This is then added to the beginning balance of cash funds to provide the ending balance.

24. Preparation of Cash Flow Statements
7.4
Preparation of Cash Flow Statements

25. Preparation of Cash Flow Statements
Using a cash transaction summary is the most direct method of preparing a cash flow statement.
Classify transactions into operating, investing or financing activities

26. Preparation of Cash Flow Statements from Cash Book Summaries
The cash book summary is another direct method of preparing a cash flow as it simply requires classification of cash transactions.

27. Net Cash Flow from Operating Activities
7.5
Reconciliation of the
Net Cash Flow from Operating Activities
with the Net Profit
for the Period

28. Reconciliation of the Net Cash Flow from Operating Activities with the Net Profit for the Period
Operating activities are those cash items reflected in the profit or loss for the period.
AASB 107 requires that a reconciliation of cash flows from operating activities to operating profit/loss be disclosed in the financial reports.

29. Purpose of the Reconciliation
Explains why the operating profit for the business does not equate to a corresponding increase in cash funds.

30. Format of the Reconciliation Statement

31. Other Non-cash Items
Other non-cash items, such as Bad Debts, Discounts Allowed and Discounts Received are not included under the “Non-Cash Items” heading.
These items are indirectly included.