Fully classified Statement of Cash Flows (with GST) in QCE Accounting
“Prepare a fully classified Statement of Cash Flows for a sole trader trading GST business, showing operating, investing and financing activities, and reconcile it to the Statement of Financial Position”
The SCF has three sections. Operating activities are the day-to-day trading cash flows (cash from customers, payments to suppliers, employees and for expenses, interest paid, and the net GST settled with the ATO). Investing activities are the buying and selling of non-current assets. Financing activities are how the business is funded: owner capital and drawings, and loans received or repaid. Net change in cash plus opening cash must equal closing cash, and that closing cash must equal the cash line in the Statement of Financial Position.
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Check against your course. The 2025 QCAA Accounting syllabus describes Unit 4 as the complete accounting processes for a trading GST business and the performance analysis of a public company, with ratios that include EBITDA, earnings per share, price earnings, dividend yield and cash flow ratios. This page covers part of that ground, so check your school's materials for the full list of what is assessed. The same ideas are also used in Unit 3 Topic 1 (cash management), which covers the purpose and classifications of the Statement of Cash Flows and the cash flow ratios.
What this dot point is asking
The Statement of Cash Flows (SCF) explains why a business's cash balance changed over a period. Profit does not tell you this, because profit is measured on the accrual basis and includes non-cash items such as depreciation. For a sole trader that is registered for GST, you must classify every cash movement into operating, investing or financing activities, show GST correctly, and finish with a closing cash figure that agrees with the Statement of Financial Position.
Exact line titles, the layout of the GST lines and whether a reconciliation of profit to operating cash flow is expected can differ between QCAA instruments. This page uses a common classified layout. Confirm the layout against the current QCAA Accounting syllabus and sample assessment instruments, and follow the format your teacher gives you.
The three classifications
- Operating activities
- Cash flows from the main trading activity. Typical inflows: receipts from customers (including GST collected). Typical outflows: payments to suppliers for inventory, wages, rent and other expenses (including the GST paid on them), interest paid, and the net GST paid to the Australian Taxation Office (ATO) or received as a refund.
- Investing activities
- Cash spent on, or received from, non-current assets such as equipment and vehicles. Inflow: proceeds from selling an asset. Outflow: purchase of an asset. Under AASB Interpretation 1031, investing (and financing) flows are shown net of GST, and the GST on them is classified in operating activities.
- Financing activities
- Cash flows between the business and those who fund it. Inflows: capital contributed by the owner, new loans. Outflows: owner's drawings paid in cash, repayment of loan principal. (Interest is a cost of borrowing, but it is usually reported in operating in this style of statement. Follow your teacher's instructions on this.)
Only items that move cash appear. Depreciation, a loss on disposal, bad debts written off and inventory held are not cash flows, so they never appear as lines.
How GST appears
Operating receipts and payments are shown at the amount that actually changed hands, which is the GST-inclusive amount. A sale of $11,000 including GST produces $11,000 of cash received, of which $1,000 is GST owed to the ATO. When the business later pays the ATO the net GST (GST collected less GST paid on purchases), that payment is a separate cash outflow. This is why a GST business shows operating receipts and payments including GST plus a line for the net GST paid to the ATO.
Investing and financing flows are treated differently. AASB Interpretation 1031 says they are presented net of GST, and the GST on them that is recoverable from or payable to the ATO is classified as an operating cash flow. So a van bought for $22,000 including GST is shown as ($20,000) in investing, and the $2,000 of GST appears in operating activities. A sole trader is not itself bound by the accounting standards, but QCE Accounting is modelled on them, so confirm the treatment your teacher and QCAA's sample instruments use.
To find the GST inside any GST-inclusive amount, divide by 11. To find the GST-exclusive amount, divide by 1.1.
Worked example
The information
Harbour Cycles is a sole trader trading GST business. All amounts below are cash amounts. The GST Clearing account was zero at the start and end of the year, and all inventory was bought and paid for in cash.
- Opening cash $18,000. Receipts from customers $286,000 (sales of $260,000 plus $26,000 GST).
- Payments to suppliers for inventory $154,000 (including $14,000 GST). Wages paid $52,000 (no GST). Other expenses paid $33,000 (including $3,000 GST). Interest paid $3,600.
- New equipment bought for $22,000 including $2,000 GST. Old equipment sold for $5,500 including $500 GST. Investing flows are shown net of GST, so they are ($20,000) and $5,000, and the $2,000 paid and $500 received go to operating.
- Net GST paid to the ATO: GST collected ($26,000 + $500) less GST paid ($14,000 + $3,000 + $2,000) = $7,500.
- Owner contributed $10,000 capital and withdrew $30,000 as drawings. A new loan of $20,000 was received and $8,000 of loan principal was repaid.
The statement
| Harbour Cycles: Statement of Cash Flows | $ | $ |
|---|---|---|
| Cash flows from operating activities | ||
| Receipts from customers | 286,000 | |
| Payments to suppliers | (154,000) | |
| Payments for wages | (52,000) | |
| Payments for other expenses | (33,000) | |
| Interest paid | (3,600) | |
| Net GST paid to ATO | (7,500) | |
| GST paid on equipment, net of GST received on the sale | (1,500) | |
| Net cash from operating activities | 34,400 | |
| Cash flows from investing activities | ||
| Purchase of equipment (net of GST) | (20,000) | |
| Proceeds from sale of equipment (net of GST) | 5,000 | |
| Net cash used in investing activities | (15,000) | |
| Cash flows from financing activities | ||
| Capital contributed by owner | 10,000 | |
| Proceeds from loan | 20,000 | |
| Repayment of loan | (8,000) | |
| Owner's drawings | (30,000) | |
| Net cash used in financing activities | (8,000) | |
| Net increase in cash | 11,400 | |
| Cash at beginning of year | 18,000 | |
| Cash at end of year | 29,400 |
Agreeing to the Statement of Financial Position
At year end the equity is $69,600 (opening $63,000 plus capital $10,000 plus net profit $26,600 less drawings $30,000). The loan is $37,000. Inventory is $30,000 and equipment is $47,200 after depreciation. Cash is the balancing figure:
The cash line in the Statement of Financial Position ($29,400) equals the closing cash in the SCF. The statements agree.
Reading the result
Operating activities generated $34,400. That covered the $15,000 net spend on equipment and left $19,400, which funded most of the owner's $30,000 drawings. The rest of the drawings was paid from the $10,000 of new capital and the $12,000 of net new borrowing, so the owner is partly drawing on outside funds. The gap between operating cash ($34,400) and profit ($26,600) is $7,800. Depreciation of $6,800 reduces profit but does not use cash, and a $1,000 fall in inventory means less cash was spent on stock than was expensed as cost of sales. Because every amount in this example was paid or received in cash and the GST Clearing account is zero at both ends, those two items explain the whole gap: $26,600 + $6,800 + $1,000 = $34,400. A healthy pattern for a mature business is positive operating cash flow that funds investing and drawings without relying on new borrowing.
Practice questions
1. Classify each as operating, investing or financing: (a) cash received from customers; (b) cash paid for a delivery van; (c) repayment of a bank loan; (d) interest paid.
Answer. (a) Operating. (b) Investing. (c) Financing. (d) Operating in the layout used on this page (confirm the placement your teacher requires).
2. A business receives $44,000 from customers, which includes GST. How much GST is in that receipt, and what is the GST-exclusive sales amount?
Answer. GST = 44,000 / 11 = $4,000. GST-exclusive sales = 44,000 / 1.1 = $40,000.
3. Opening cash was $9,500. Net cash from operating activities was $21,300, net cash used in investing was $14,000 and net cash from financing was $2,200. Calculate closing cash.
Answer. Net change = 21,300 - 14,000 + 2,200 = $9,500 increase. Closing cash = 9,500 + 9,500 = $19,000.
4. Explain why depreciation does not appear in the Statement of Cash Flows.
Answer. Depreciation is an allocation of an asset's cost over its life. No cash leaves the business when it is recorded, so it is not a cash flow. The cash was paid when the asset was bought, and that appears as an investing outflow in that year.
- Putting drawings in operating activities
- Cash drawings are a financing flow between the owner and the business.
- Including non-cash items
- Depreciation, losses on disposal and bad debts written off are not cash flows.
- Getting the GST treatment backwards
- Operating receipts and payments are the GST-inclusive amounts that actually moved, with the net GST settlement shown separately. Investing and financing flows are shown net of GST, with the GST on them placed in operating (AASB Interpretation 1031).
- Not checking the closing cash
- If closing cash does not agree with the Statement of Financial Position, a line is missing or in the wrong direction.