The document discusses the classification of cash flows in a cash flow statement into three groups: operating activities, investing activities, and financing activities. Operating activities include cash flows from day-to-day business operations. Investing activities consist of cash flows related to purchasing and selling non-current assets. Financing activities capture cash flows that result from changes in a company's capital structure, such as through borrowing or lending. The document provides examples to illustrate how different cash flow items are classified within these three categories.

1. 12.3
CLASSIFICATION OF
CASH FLOWS

2. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 In a Cash Flow Statement, cash flows are classified into 3 groups:
12.3 CLASSIFICATION OF CASH FLOWS
Operating activities
Cash flows resulting from the provision of goods and services in the day-to-day
operations of the business
• Cash inflows from selling goods and services to customers
• Cash outflows from payments to employees and suppliers of goods and services
Investing activities
Cash flows relating to the sale or purchase of non-current assets
• Cash inflows from selling non-current assets
• Cash outflows from buying non-current assets
Financing activities
Cash flows that result from changes in the firm’s financial structure
• Capital contributions by the owner
• Drawings by the owner
• Borrowings (loans) from financial institutions
• Loans repayments

3. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
12.3 CLASSIFICATION OF CASH FLOWS
Go to the bank and get
a loan to start your own
business…
Spend the money on buying non-
current assets for the business…
Operating
Activity
Investing
Activity
Financing
Activity
Buy stock, open the
store and make some
sales…

4. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 In a Cash Flow Statement, cash flows are classified into 3 groups:
Cash Inflows Cash Outflows
Operating Activities • Selling goods for cash
• Collections from debtors
• Commission received
• Interest received
• GST collected
• GST refunds
• Cash purchases of stock
• Payments to creditors
• Expenses paid
• GST paid
• GST settlements
Investing Activities • Sale of non-current assets
for cash
• Purchase of non-current
assets for cash
Financing Activities • Capital contributions
• Borrowings (loans) from
financial institutions
• Drawings of cash
• Loan repayments
Cash Inflows Cash Outflows
Operating Activities • Selling goods for cash
• Collections from debtors
• Commission received
• Interest received
• GST collected
• GST refunds
• Cash purchases of stock
• Payments to creditors
• Expenses paid
• GST paid
• GST settlements
Investing Activities • Sale of non-current assets
for cash
• Purchase of non-current
assets for cash
Financing Activities • Capital contributions
• Borrowings (loans) from
financial institutions
• Drawings of cash
• Loan repayments
Cash Inflows Cash Outflows
Operating Activities • Selling goods for cash
• Collections from debtors
• Commission received
• Interest received
• GST collected
• GST refunds
• Cash purchases of stock
• Payments to creditors
• Expenses paid
• GST paid
• GST settlements
Investing Activities • Sale of non-current assets
for cash
• Purchase of non-current
assets for cash
Financing Activities • Capital contributions
• Borrowings (loans) from
financial institutions
• Drawings of cash
• Loan repayments
Cash Inflows Cash Outflows
Operating Activities • Selling goods for cash
• Collections from debtors
• Commission received
• Interest received
• GST collected
• GST refunds
• Cash purchases of stock
• Payments to creditors
• Expenses paid
• GST paid
• GST settlements
Investing Activities • Sale of non-current assets
for cash
• Purchase of non-current
assets for cash
Financing Activities • Capital contributions
• Borrowings (loans) from
financial institutions
• Drawings of cash
• Loan repayments
Cash Inflows Cash Outflows
Operating Activities • Selling goods for cash
• Collections from debtors
• Commission received
• Interest received
• GST collected
• GST refunds
• Cash purchases of stock
• Payments to creditors
• Expenses paid
• GST paid
• GST settlements
Investing Activities • Sale of non-current assets
for cash
• Purchase of non-current
assets for cash
Financing Activities • Capital contributions
• Borrowings (loans) from
financial institutions
• Drawings of cash
• Loan repayments
Cash Inflows Cash Outflows
Operating Activities • Selling goods for cash
• Collections from debtors
• Commission received
• Interest received
• GST collected
• GST refunds
• Cash purchases of stock
• Payments to creditors
• Expenses paid
• GST paid
• GST settlements
Investing Activities • Sale of non-current assets
for cash
• Purchase of non-current
assets for cash
Financing Activities • Capital contributions
• Borrowings (loans) from
financial institutions
• Drawings of cash
• Loan repayments
Cash Inflows Cash Outflows
Operating Activities • Selling goods for cash
• Collections from debtors
• Commission received
• Interest received
• GST collected
• GST refunds
• Cash purchases of stock
• Payments to creditors
• Expenses paid
• GST paid
• GST settlements
Investing Activities • Sale of non-current assets
for cash
• Purchase of non-current
assets for cash
Financing Activities • Capital contributions
• Borrowings (loans) from
financial institutions
• Drawings of cash
• Loan repayments
12.3 CLASSIFICATION OF CASH FLOWS

5. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 Cash sale of $1,000 plus $100 GST is made (cost price $600)
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Investing Activities
Financing Activities
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Investing Activities
Financing Activities
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Investing Activities
Financing Activities
12.3 CLASSIFICATION OF CASH FLOWS

6. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 Paid rent $700 plus $70 GST
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Rent $700
GST paid $70
Investing Activities
Financing Activities
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Rent $700
GST paid $70
Investing Activities
Financing Activities
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Rent $700
GST paid $70
Investing Activities
Financing Activities
12.3 CLASSIFICATION OF CASH FLOWS

7. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 Sold one of the firm’s vehicles for $2,000
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Rent $700
GST paid $70
Investing Activities Sale of vehicle $2,000
Financing Activities
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Rent $700
GST paid $70
Investing Activities Sale of vehicle $2,000
Financing Activities
12.3 CLASSIFICATION OF CASH FLOWS

8. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 Purchased office equipment for $3,000 plus $300 GST
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities
12.3 CLASSIFICATION OF CASH FLOWS

9. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 Borrowed $15,000 from the bank
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000
12.3 CLASSIFICATION OF CASH FLOWS

10. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 The owner made drawings of $500
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000 Drawings $500
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000 Drawings $500
12.3 CLASSIFICATION OF CASH FLOWS

11. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 Received $300 in interest on the firm’s investments
Cash Inflows Cash Outflows
Operating Activities Interest revenue $300 GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000 Drawings $500
Cash Inflows Cash Outflows
Operating Activities Interest received $300 GST paid $300
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000 Drawings $500
12.3 CLASSIFICATION OF CASH FLOWS

12. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 Made a payment to the bank of $700 - $600 loan repayment and $100
interest
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Interest expense $100
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000 Loan repayment $600
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Interest expense $100
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000 Loan repayment $600
Cash Inflows Cash Outflows
Operating Activities Cash sales $1,000
GST collected $100
Interest expense $100
Investing Activities Sale of vehicle $2,000 Purchase of office equipment
$3,000
Financing Activities Loan $15,000 Loan repayment $600
12.3 CLASSIFICATION OF CASH FLOWS

13. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
 Example:
 When you are not sure how an item should be classified in the Cash Flow
Statement, use the bottom-up technique…
Cash sales
Can it go
here?
Operating
Activities
Investing
Activities
Financing
Activities
Cash sales
Can it go
here?
Cash sales
Can it go
here?
Payments to
creditors
Can it go
here?
Payments to
creditors
Can it go
here?
Payments to
creditors
Can it go
here?
Sale of
computer
Can it go
here?
Sale of
computer
Can it go
here?
GST paid
Can it go
here?
GST paid
Can it go
here?
GST paid
Can it go
here?
Receipts from
debtors
Can it go
here?
Receipts from
debtors
Can it go
here?
Receipts from
debtors
Can it go
here?
Purchase of
vehicle
Can it go
here?
Purchase of
vehicle
Can it go
here?
Capital
contribution
Can it go
here?Interest paid
Can it go
here?
Interest paid
Can it go
here?
Interest paid
Can it go
here?
Interest
received
Can it go
here?
Interest
received
Can it go
here?
Interest
received
Can it go
here?
Loan
repayment
Can it go
here?
12.3 CLASSIFICATION OF CASH FLOWS

14. © Michael Allison, Trinity Grammar School.
Author’s permission required for external use
TASK
In-class Homework
SQ3 X
SQ4 X
SQ12 X
SQ13 X