Cash Flow Statement

Start this section by recording the actual cash that moves in and out of your business bank accounts. You must focus only on money that has changed hands during the reporting period. Under Australian accounting standards, specifically AASB 107 Statement of Cash Flows, you are required to report cash flows from operating activities using the direct method. This means you list the principal types of gross cash receipts and gross cash payments. You cannot just list the net profit for the year.

Receipts from Customers

List the total amount of money received from clients. This includes cash payments, direct bank transfers, and cheque payments cleared during the period. ly, this figure differs from your total sales income on the tax invoice. You must exclude any unpaid invoices or debtors. For example, if you issued a tax invoice for $5,000 in June but the client did not pay you until July, you record that $5,000 as a receipt in July. If you are registered for Goods and Services Tax (GST), ensure you record the GST-inclusive amount received, as this represents the total cash deposited into your account.

Payments to Suppliers and Employees

Record the cash that leaves your account to pay for the day-to-day running of your business. Group these payments into clear categories.

Rent List the actual amount paid for the lease of your workshop, yard, or office. Do not list the rent expense if you have not yet paid it. If you paid a rental bond or several months of rent in advance, record the exact amount that left your bank account during this reporting period.

Materials and Supplies Record cash payments made to trade suppliers for timber, steel, plumbing supplies, or electrical parts. If you purchased materials on credit from a supplier and paid the account off later, record the cash payment only on the date you paid the supplier, not the date you picked up the materials. This ensures the statement reflects cash reality rather than accrued expenses.

Employee Wages Write down the total gross wages paid to staff. This figure must be the total amount before tax and other deductions that you have physically paid out. Under the Fair Work Act 2009 and modern awards, you are required to keep accurate records of these payments. Ensure the amount here matches your payroll records. Do not include superannuation guarantee contributions in this specific line item; those are reported separately as non-cash or investing/financing activities depending on the payment structure, though strictly speaking, the cash payment of super to the fund is a cash flow.

This section provides a clear view of the cash generated by your core trade operations. Accurate records here satisfy the requirements of the Australian Securities and Investments Commission Act 2001 and help you manage liquidity.

When you buy tools, vehicles, or heavy equipment for your business, the way you record this transaction is different to recording everyday costs like fuel or wages. Under Australian accounting standards, you are not recording an immediate expense. Instead, you are recording the purchase of a capital asset. This money leaves your bank account, but it creates value for your business that lasts for years. Because of this, you must report this transaction under Cash Flows from Investing Activities.

You must record the total amount paid as a cash outflow. This includes the purchase price of the item plus any costs directly related to getting it ready for use. For example, if you buy a new ute for $40,000 and pay $2,000 in stamp duty and registration, the total cash outflow you record is $42,000. Do not try to claim the full amount as a day-to-day expense in your profit and loss statement. Doing this would incorrectly inflate your expenses and reduce your taxable profit, which breaches the requirements of the Income Tax Assessment Act 1997 (Cth).

The accounting standard AASB 107 Statement of Cash Flows dictates that you treat capital expenditure separately from operating expenses. This separation is vital because it shows anyone reading your accounts, like the Australian Taxation Office (ATO) or your bank, that you are investing in the future of your trade rather than just paying the bills. It proves you are buying assets that help generate income over time.

While the cash flow statement records the money leaving your business immediately, you handle the tax deduction differently through depreciation. Under Division 40 of the Income Tax Assessment Act 1997, you claim the cost of the asset as a deduction over its effective life. You must work out the depreciation rate set by the ATO for that specific type of equipment. This ensures you claim the expense gradually as the asset loses value, rather than all at once.

Keep accurate records of every invoice and receipt for these purchases. If you use the equipment for both business and private purposes, you must identify and record only the business portion of the cash outflow. Failing to separate private use from business use is a common error during ATO audits. By recording these purchases correctly in your investing activities section, you maintain a clear financial trail and stay compliant with Australian regulations.

Loan Proceeds

Record all money you borrow for the business here. This includes bank loans, equipment finance, and car loans. When the bank deposits the loan funds into your business account, you write the total amount as a positive figure. Do not record the interest component in this section. You only record the actual capital received. Ensure you have the loan contract or credit agreement on file. Under the Corporations Act 2001, public companies must disclose the nature of these financing arrangements, but as a small business or sole trader, your main obligation is accurate tracking for income tax purposes under the Income Tax Assessment Act 1936 and Income Tax Assessment Act 1997.

Loan Repayments

When you pay back the money you borrowed, record the principal portion of the repayment here. This amount must be a negative figure. It is vital to separate the principal from the interest. The principal repayment reduces your loan balance and is a financing activity. The interest charged by the bank is not a financing activity. You must record interest payments under the Operating Activities section. This separation is a requirement of AASB 107 Statement of Cash Flows. If you bundle the total repayment together, your financial statements will not comply with Australian Accounting Standards.

Owner Capital Contributions

Money you put into the business from your personal funds is not income. It is equity. Record the amount you contribute as a positive figure in this section. This applies whether you transfer cash from a personal account or use personal funds to pay a business supplier. You must keep distinct records between your personal assets and business assets. This structure supports the entity concept in accounting. If you operate through a company structure, these contributions often appear as Share Capital or Director's Loan accounts.

Owner Drawings

If you take money out of the business for personal living expenses, holidays, or private use, record it here as a negative figure. This is commonly known as drawings. For sole traders and partners in a partnership, these withdrawals are not tax-deductible business expenses. They simply reduce the amount of equity you have in the business. If you operate as a company and pay yourself a salary, that payment is a wages expense and belongs in Operating Activities. However, if you take money out that is not a formal wage or dividend repayment, it is treated similarly to drawings. Properly recording these amounts is essential for managing your cash position and meeting the record-keeping standards set by the Australian Taxation Office.

Calculating Net Cash Increase or Decrease

This final section brings your cash flow statement together. To find your net cash movement, you must add the totals from the three main sections of your document.

Add the total Net Cash from Operating Activities to the total Net Cash from Investing Activities. Then, take that sum and add the total Net Cash from Financing Activities.

The final figure is your Net Cash Increase or Decrease.

If the number is positive, your business has generated more cash than it has spent during this period. If the number is negative, your business has spent more cash than it has generated.

This figure is critical for understanding liquidity. It tells you exactly how much cash has moved in or out of the business bank accounts, ignoring profit or accrued revenue. For Australian small businesses, maintaining accurate cash flow records is a legal requirement under the Corporations Act 2001 (Cth) if you are a company, or under Australian Taxation Office (ATO) record-keeping rules if you are a sole trader. You must keep these records for five years.

Determining the Closing Balance

Once you have the Net Cash Increase or Decrease, you must apply it to your bank accounts.

Take the Cash Balance at the Start of the Reporting Period. This is the closing balance from your previous statement or your opening bank balance for the financial year.

Add your Net Cash Increase to this opening balance. If you have a Net Cash Decrease, subtract that amount from the opening balance.

The result is your Cash Balance at the End of the Reporting Period.

This final number must match the actual balance of your business bank accounts on the last day of the reporting period. If the numbers do not match, you have made an error in your earlier sections. You must review your operating, investing, and financing totals to find the discrepancy.

A correct calculation ensures your Balance Sheet will be accurate. The cash figure calculated here is the exact amount you record as 'Cash and Cash Equivalents' in your current assets. This reconciliation is essential for preparing your Business Activity Statement (BAS) and annual income tax return. It also provides a clear picture of your ability to pay debts, fund future work, and grow your trade business.

Reconciliation and Verification

The closing balance on your Cash Flow Statement must match the actual closing balance on your bank statement for the same date. This is not an optional step. It is the fundamental check to prove your records are accurate. If you use accounting software, this process happens when you perform a bank reconciliation. You must confirm every transaction is recorded and categorised correctly.

Under the Corporations Act 2001 (Cth), directors have a duty to keep financial records that accurately record the company’s transactions and financial position. For sole traders and partnerships, the Income Tax Assessment Act 1997 (Cth) requires you to keep records that support your tax returns. If your cash flow balance does not match the bank, your records fail these tests. This creates a false view of your business liquidity and can lead to errors in your Business Activity Statement (BAS).

What to do if the numbers do not match

If your closing balances are different, you must find the error before you finalise your accounts. Start with these common checks for Australian tradespeople and small businesses.

1. Check unreconciled items Look for payments or deposits that show on your bank statement but are missing from your accounting software. A common issue is unpresented cheques or customer direct deposits you did not record. You must enter these transactions to bring your books up to date.

2. Verify GST coding Incorrectly coding the GST on transactions changes the dollar value recorded. Review the coding on recent expenses and income. If you claim the GST on a purchase but should not have, your cash flow calculation will be wrong. Refer to the Australian Taxation Office (ATO) guidelines on GST tax invoices if you are unsure.

3. Review bank feeds and duplicates Sometimes the bank feed downloads a transaction twice, or a manual entry was entered in addition to the bank feed. Look for duplicate amounts. Delete the extra entry immediately.

4. Check for data entry errors Look for transposition errors, such as typing $560 instead of $650. Even small mistakes cause a mismatch.

5. Missing bank fees or interest Banks often charge account keeping fees or pay interest at the end of the month. These small amounts are easily missed. Add them to your records.

Fixing these discrepancies ensures your financial reports are reliable. Accurate records protect you if the ATO conducts an audit and help you make smart decisions about paying staff and suppliers. Do not rely on a cash flow statement that has not been reconciled to the bank.