Accounting Reports

Question 1

Cash Flow Statement

Answer 1

An accounting reporting that details all cash inflows and outflows from Operating Investing and Financing activities, and the overall change in the firm’s cash balance.

Question 2

Cash flows from Operating Activities

Answer 2

Cash flows related to day-to-day trading activities.

Remember, if the question requires you to explain what is meant by net cash flows from operations, you need to reference cash inflows from cash outflows to address the inclusion of “net” in the question.

Question 3

Cash flows from Investing activities.

Answer 3

Cash flows related to the purchase and sale of non-current assets.

Common error: when recording a purchase of a NCA as an outflow, is to include the GST amount. This should be included in GST Paid in operating activities. For example, a computer that costs $1320 (incl. GST) - Cash outflow for investing activities = $1200 and the remaining $120, would be included in GST Paid in operating activities.

Question 4

Cash flows from Financing Activities

Answer 4

Cash flows related to changes in the financial structure of the firm.

Common error: including interest payments in this section. Interest expense or paid is recorded in Operating Activities.

Question 5

Cash surplus

Answer 5

An excess of cash inflows over cash outflows, leading to an increase in the bank balance.

Question 6

Cash deficit

Answer 6

An excess of cash outflows over cash inflows, leading to a decrease in the bank balance.

Question 7

Cash Flow Statement Template

Answer 7

Question 8

Structure for a cash vs profit question.

Answer 8

1. Net Profit and net cash are two different measures of performance.
2. The net cash position is the result of subtracting cash outflows from cash inflows.
3. Whereas, under accrual accounting, Net profit is the result of revenue earned less expenses incurred.
4. Some items impact one but not the other, and there are some items that can impact on both, however, by differing amounts.
5. Example 1
6. Example 2 (if question requires two examples)

Question 9

Cash items that do not affect profit

Answer 9

Cash inflows that are not revenue

• Capital contribution
• Loan received
• GST received, including GST Refund (as long as GST paid is not the same amount).

Cash outflows that are not expenses

• Cash drawings
• Loan repayments
• Cash purchase of Non-current assets
• GST Paid, including GST Settlement (as long as GST Received is not the same amount).

Question 10

Profit items that are not cash.

Answer 10

Revenues items that are not cash inflows

• Inventory gain

Expense items that are not cash outflows

• Inventory Loss
• Inventory Write-down

Question 11

Items that affect both cash and profit, but by differing amounts.

Answer 11

Credits Sales (Revenue) / Receipts from Accounts Receivable (Cash)

Cost of Sales (Expense) / Payments to Accounts Payable or Cash purchases of inventory

We will add Accrued and Prepaid expneses in Unit 4

Question 12

A business may earn profit but suffer a cash deficit due to:

Answer 12

Question 13

A business may earn loss but generate a cash surplus due to:

Answer 13