HI5020 Corporate Accounting

Session 5a
Cash Flow Statement

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 Session Objectives
•Understand the accounting requirements related
to disclosure of information about an
organisation’s cash flow
•Construct a statement of cash flows (AASB 107)
•The relation between statement of cash flow and
statements of financial position and
comprehensive income
•Defining cash and cash equivalents
•Difference between cash flows from operations,
investing and financing activities
•Notes supporting cash flows
 Concept of Cash
1. As transfers between ‘cash’ items do not appear in the
statement it is essential to determine what makes up cash
2. Cash is defined in AASB 107 as cash and cash equivalents.
3. AASB 107 classify cash flows as:
A. Operating activities – Principal revenue producing activities,
provision of goods and/or services. Normal activities under purpose
of business.
B. Investing activities – acquisition and disposal of long-term assets
(P&E, property, securities, etc.)
C. Financing activities – those activities that change the size or
composition of the financial structure of a business such as equity
(capital) and borrowings
 Quandary? Cash Flow v.s. Profit
•It should be noted that a business can achieve good
profits but have cash-flow problems, in fact this could
potentially create significant concerns. Why?
•A good profit is determined by activities during the
year. Please take note that most businesses apply the
accrual method and not cash.
•They may also have significant expenditure in capital
investments.
•Impact can be for public companies a backlash from
the “market”, share prices fall.
 Composition of Cash Flow Statement

The statement must:

A. Identify cash at beginning and end of
period.
B. Separately disclose cash inflows and
outflows.
C. Classify cash flows as arising from
operating, investing or financing activities.
D. Australian standard specifies the direct
method of reporting cash flows.
 Citigroup Cash Flow Statement
(all numbers in millions of US$)

Period ending 12/31/2017 12/31/2016 12/31/2015

Net income 21,538 24,589 17,046
Operating activities, cash flows provided by or used in:
Depreciation and amortization 2,790 2,592 2,747
Adjustments to net income 4,617 621 2,910
Decrease (increase) in accounts receivable 12,503 17,236 --
Increase (decrease) in liabilities (A/P, taxes payable) 131,622 19,822 37,856
Decrease (increase) in inventories -- -- --
Increase (decrease) in other operating activities (173,057) (33,061) (62,963)
Net cash flow from operating activities 13 31,799 (2,404)
Investing activities, cash flows provided by or used in:
Capital expenditures (4,035) (3,724) (3,011)
Investments (201,777) (71,710) (75,649)
Other cash flows from investing activities 1,606 17,009 (571)
Net cash flows from investing activities (204,206) (58,425) (79,231)
Financing activities, cash flows provided by or used in:
Dividends paid (9,826) (9,188) (8,375)
Sale (repurchase) of stock (5,327) (12,090) 133
Increase (decrease) in debt 101,122 26,651 21,204
Other cash flows from financing activities 120,461 27,910 70,349
Net cash flows from financing activities 206,430 33,283 83,311
Effect of exchange rate changes 645 (1,840) 731
Net increase (decrease) in cash and cash equivalents 2,882 4,817 2,407
 Cash Flow Statement

1. Did you notice the structure? Was there one

and if so, what was it?
2. What was the first item that was shown before
all the ‘adjusting’ entries? Why?
3. Did you notice that Depreciation and
amortisation was shown? Why?
 Citibank Cash Flow Statement - Questions
1. The first item was the Net profit (should be after
tax).
2. Note that Cash flows from operating activities is
ALWAYS first, then Cash flows from investing
activities and finally Cash flows from financing
activities.
3. In the P/L, we recognise all expenses and we know
that Depreciation and Amortisation are “write-off”
amounts, not cash reduction so they need to be
added back in for cash-flow.
 Cash Flows from Operating Activities

Principal revenue-producing activities not

investing or financing activities like:
• Cash receipts from customers
• Cash payments to suppliers of services
and inventory
 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
The END

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