HI5020 Corporate Accounting

Session 5b
Cash Flow Statement

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 Session Objectives
•Construct a statement of cash flows (AASB 107)
•Difference between cash flows from operations,
investing and financing activities
•Notes supporting cash flows
 Problem
A company provides the following information and want to
now how much cash was received:
Sales – cash $120,000
Sales – credit $780,000
Discounts provided $ 10,000
Doubtful debts – year $ 22,000
Opening balance, Accounts receivable $154,000
Closing balance, Accounts receivable $159,000
Opening balance, Provision for doubtful debts $ 24,000
Closing balance, Provision for doubtful debts $ 25,000
 Solution
The total cash received is:

Cash sales $120,000

Accounts receivable 744,000
TOTAL $864,000
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 Problem
A company provides the following information and want to
now how much cash was received:
Sales – cash $120,000
Sales – credit $780,000
Discounts provided $ 10,000
Doubtful debts – year $ 22,000
Opening balance, Accounts receivable $154,000
Closing balance, Accounts receivable $159,000
Opening balance, Provision for doubtful debts $ 24,000
Closing balance, Provision for doubtful debts $ 25,000
 Solution
DR CR Balance
Sales
Cash sales 120,000 120,000
Accounts receivable 780,000 900,000

Accounts Receivable
Opening Balance 154,000 154,000
Sales 780,000 934,000
Provision for doubtful debts 21,000 913,000
Discounts 10,000 903,000
Cash 744,000 159,000
Closing Balance 159,000

Provision – Doubtful debt

Opening Balance 24,000 24,000
Accounts receivable 21,000 3,000
Doubtful debts expense 22,000 25,000
Closing Balance 25,000
 Solution (cont.)
The total cash received is:

Cash sales $120,000

Accounts receivable 744,000
TOTAL $864,000
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 Cash from Operating Activities
Other impacts on cash flow from operating
activities include:
Interest payments (cash)
Interest received (cash)
Dividends received
Payment of taxes
Payments to creditors
Wages and salaries paid
Expenses (cash payments)
NOTE: Adjustments for accruals must be
considered
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 Cash Flows from Investing Activities

Relates to acquisition and disposal

of long-term assets and other
investments
• Cash paid to buy new plant
• Cash received from sale of investment
Note: Interest and dividends received on these
investments are classified as operating activities
 Example
Given the facts below, determine what equipment they
acquired for cash:
Opening balance $1,000,000
Closing balance $ 956,000

Equipment with a carrying value of $140,000 (cost

$190,000) has been revalued to $170,000

Equipment sold for $30,000 (carrying value of $50,000,

cost $130,000)

Shares in company exchanged for equipment with a fair

value of $80,000
 Example - Solution
Step 1 Record the journal entries
Accumulated depreciation 50,000
Equipment 50,000
To eliminate accumulated depreciation to revalue

Equipment 30,000
Asset revaluation reserve 30,000
To revalue equipment to $170,000

Asset revaluation reserve 9,000

Deferred tax liability 9,000
To recognise the DTL on the equipment revaluation being $30,000 x
30% (corporate tax rate)
 Equipment Ledger
Equipment DR CR Balance

Opening Balance 1,000,000 1,000,000

Accumulated depreciation 50,000 950,000
Asset revaluation reserve 30,000 980,000
Non-cash transaction 80,000 1,060,000
Cash ** 26,000 1,086,000
Disposal 130,000 956,000
Closing Balance 956,000 956,000
 Cash Flows from Financing Activities
A. Relate to changing size or composition of
the equity and borrowings of an entity
• Cash received from new issue of share capital
• Cash used to repay mortgage loan

B. Cash dividends paid to shareholders are

classified as financing activities

C. Can also be inflows such as long-term

loans, debentures and bonds, etc.
 Preparing the Cash Flow Statement

There are two methods:

1. Analyse cash and other accounting records such as
Cash Purchase Journal, Cash Receipts Journal,
General Journal and Bank ledger
2. Analyse the financial statements especially the profit
and loss statement
Both methods should produce the same
cash inflows and cash outflows
The END

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