1. Repository for all documents: www.uwcentre.ac.cn/haut
Welcome to
ACF 201 and ACF 202
Lecturer:
Cynthia Fortin, CPA, CMA
Wechat: cynthia
Repository for all documents:

2. Accounting and Reporting on a
Chapter 1
Accounting and Reporting on a
Cash Flow Basis

3. By the end of this chapter, you should be able to:
explain the extent to which cash flow accounting satisfies the information needs of shareholders and managers;
prepare a cash budget and operating statement of cash flows;
explain the characteristics that makes cash flow data a reliable and fair representation;
critically discuss the use of cash flow accounting for predicting future dividends.

4. External users – Restricted information Quality of information
Tensions between investors’ needs and management’s
willingness to provide projections based on “best” estimates
General-purpose reports
Cannot provide detailed information for all user needs
Shareholders’ primary concern.
They are the owners and providers of economic resources

5. External users expect accountants to have:
Technical expertise – IFRS compliance
Commercial awareness – substance over form
WHEREAS: Internal users –
Accountants and Managers have:
Access to detailed financial budget/actual results
No statutory restriction on detail
Companies operate on ‘need to know’ basis
i.e managers only get the information they need to carry out their responsibilities to the best of their abilities

6. Internal reports – accountants’ skills
Ability to provide reports specific to the needs; so,
they are a good basis for decisions
Skilled communicator
Reports are clear and precise
User confidence that reports are:
Relevant and timely
Objective and verifiable
Reliable and complete in material respects
Fair representations.

7. Steps when reporting to users. See example pp. 8-15 (pp
Steps when reporting to users. See example pp.8-15 (pp.4-11) of text book
Figure 1.1 General financial decision model to illustrate the user/accountant interface

8. Illustration – forecast (expected) period financial report for first 6 months
Figure 1.6 Forecast of realised operating cash flows

9. Illustration – first 6 months actual cash flows for monthly sales
Figure 1.7 Monthly sales, purchases and expenses for 6 months ended 30 June 20X1

10. Illustration – realised operating cash flows
Figure 1.8 Monthly realised operating cash flows

11. Illustration – realised operating cash flows for first 6 months
Figure 1.9 Realised operating cash flows for the 6 months ended 30 June 20X1

12. Illustration – budget/actual comparison
Figure Forecast/actual comparison

13. What characteristics make this data relevant?
Objective
Consistent
Confirmatory
Predictive
Accounting standards only required when judgements have to be made – Eg. estimating bad and doubtful debts
Cash based; so, No need for FRSs or IFRSs.

14. Statement of financial position under cash flow concept needed as:
Basis to assess stewardship
The accounting system records all transactions
Includes capital cash flows
Preparation of a statement of financial position
Basis to evaluate working capital policies.

15. Illustration – cash flow statement
See Figure 1.8 for operating cash flows.
Figure Cash flow statement to calculate the net cash balance

16. Illustration – Statement of financial position
Figure Statement of financial position

17. Illustration – Statement of financial position
Assuming lease has a realisable value of 74,000 with an unrealised operating outflow of 6,000
Figure Statement of financial position as at 30 June 20X1 (assuming that there were unrealised operating cash flows)

18. Characteristics that make data reliable
Prudence
Reasonable, but NOT excessive
Neutrality
Present best picture for business, but not a misleading one
Completeness
Faithful representation
Substance over form – commercial reality.

19. Summary – cash flow accounting
How useful is it for internal decision-making?
Forecast CFs are relevant for investment appraisal
Actual CFs are relevant for confirmation of the investment decision
Both forecast and actual CFs are relevant for working capital management

20. Summary – cash flow accounting
How useful is it for making management accountable?
Realised cash flows are useful for capital investment decision and monitoring
Note that unrealised cash flows are also necessary for stewardship purposes.

21. Summary – cash flow accounting
How useful is it for external reporting?
Relevant for stewardship and accountability
Reliable
Objective
Consistent
Prudent
Neutral.

22. Reference Elliott, Barry, Elliott Jamie,
Financial Accounting and Reporting
15th Edition chapter 1