ACC2100 · Financial Accounting
Statement of Cash Flows (AASB 107)
Statement of Cash Flows (Week 2, AASB 107) converts accrual figures into cash by classifying flows into operating, investing and financing, and reconstructing cash receipts and payments using the direct method. The core skill is the T-account reconstruction — turning opening/closing balances and accrual amounts into the actual cash that moved.
This is a Part-2 written-answer stake worth 10 marks. The marks come from the right classification, the correct opening + accrual − closing reconstruction for each line, and a clean reconciliation back to the change in cash.
What this chapter covers
- 01Three classifications: operating (day-to-day), investing (long-term assets), financing (equity & borrowings)
- 02Unit conventions: interest paid = operating, interest received = investing, dividends paid = financing, tax paid = operating
- 03Cash from customers = Opening AR + Sales − Closing AR
- 04Cash to suppliers via Purchases = Closing Inventory + COGS − Opening Inventory
- 05Other operating payments: wages, rent, interest and income tax via the same T-account pattern
- 06Proceeds on sale of a non-current asset: CA = Cost − Accum depn, then Proceeds = CA + Gain (or − Loss)
- 07Dividends paid and financing flows (share issue, loan movements)
- 08Reconciliation: net increase in cash = ΣOperating + ΣInvesting + ΣFinancing
Cash received from customers and cash paid to suppliers (direct method)
- 2 marksCash from customers reconstructs the AR account: Cash = Opening AR + Sales − Closing AR = 180,000 + 940,000 − 206,000.
- 1 markCompute (a): 180,000 + 940,000 − 206,000 = $914,000 inflow (operating).
- 2 marksFor suppliers, first find purchases on an accrual basis: Purchases = Closing inventory + COGS − Opening inventory = 72,000 + 610,000 − 60,000 = $622,000.
- 1 markThen convert purchases to cash via the AP account: Cash to suppliers = Opening AP + Purchases − Closing AP = 74,000 + 622,000 − 69,000 = $627,000 outflow (operating).
Key terms
- Operating activities
- Cash flows from the entity's principal revenue-producing, day-to-day activities — receipts from customers, payments to suppliers and employees, interest paid, and income taxes paid (unit convention).
- Investing activities
- Cash flows from acquiring and disposing of long-term assets and other investments — purchase and sale of property, plant and equipment, and interest received (unit convention).
- Financing activities
- Cash flows that change the size and composition of equity and borrowings — proceeds from share issues, loan drawdowns and repayments, and dividends paid (unit convention).
- Direct method
- Presenting operating cash flows by major class of gross cash receipt and payment (cash from customers, cash to suppliers, etc.), reconstructed from accrual figures using T-accounts. This is the method examined in ACC2100.
- T-account reconstruction
- Recovering an unknown cash figure from a ledger account's opening and closing balances and the accrual amount, using the pattern Cash = Opening balance + accrual additions − Closing balance (with the sign set by whether the account is an asset or a liability).
Statement of Cash Flows (AASB 107) FAQ
Direct or indirect method — which does ACC2100 examine?
The direct method. You present operating cash flows as gross receipts and payments (cash from customers, cash to suppliers, wages paid, interest paid, tax paid), each reconstructed from the relevant ledger account. The indirect method (starting from profit and adjusting) is not the focus of the Week 2 written question.
How do I classify interest and dividends?
Follow the unit's conventions, which you should apply consistently: interest paid is always operating, interest received is investing, dividends paid is financing, and income taxes paid is operating. These choices are examinable, so state them and stick to them rather than improvising.
How do I find the cash proceeds when an asset is sold at a gain?
Work out the carrying amount first: CA = Cost − Accumulated depreciation. Then add the gain (or subtract the loss): Proceeds = CA + Gain. A gain means you received more than the carrying amount, so it adds; a loss subtracts. The proceeds are an investing inflow.
Why convert COGS into purchases for the suppliers line?
COGS is an accrual figure for goods sold, not goods bought, so it has to be adjusted for the inventory movement first: Purchases = Closing inventory + COGS − Opening inventory. Only then do you run purchases through the accounts payable account to get the cash actually paid. The suppliers calculation is two T-accounts back to back — inventory, then payables.
Exam move
Drill the reconstructions until each line is automatic, because this 10-mark question is pure procedure. Write a cheat-line for every operating item — customers (Opening AR + Sales − Closing AR), suppliers (the two-step inventory→payables route), wages, rent, interest and tax — and rehearse them on fresh numbers. Lock in the classification conventions (interest paid operating, interest received investing, dividends paid financing, tax paid operating) and the asset-sale rule (CA = Cost − Accum depn, then Proceeds = CA + Gain). Finish every attempt with the reconciliation: net increase in cash = ΣOperating + ΣInvesting + ΣFinancing, and Opening cash + net increase = Closing cash — a self-check the examiner also marks. Lay the working out as actual T-accounts so a slip is visible and recoverable.
