How Should We Handle The Imbalance In The Statement Of Cash Flow?

The unbalance of the first draft of the cash flow statement is the most common problem for beginners.

Whether it is working papers or formula analysis, the first compilation of beginners is often difficult to compile, and can not be checked.

The net cash flow of operating activities + net cash flow of investment activities + net flow of financing activities + exchange rate changes on cash and cash equivalents are not equal to net increase in cash and cash equivalents.

The net cash flow of business activities adjusted by the indirect method plus or minus the adjustment factors is not equal to the net cash flow of operating activities in the main table.

A set of high-quality cash flow statements should not only satisfy the balance of statements, but also conform to the relationship between the two main tables, which can reflect the cash flow situation of enterprises reasonably and truly.

How can we check the unbalance of report forms?

In practical work, we may encounter more complicated situations.

But no matter what the situation is, we only need to grasp the basic principle of the statement of cash flow, that is to say, we must remain unchanged.

When we use the adjustment entry method to compile the cash flow statement, when we check the balance, we can adjust the entries to find out whether the borrower is the factor of business activities and investment or financing activities.

If the borrower is a matter of business activities, it does not need to be adjusted in the indirect method.

If the borrower corresponds to investment or financing activities for business activities, it should be adjusted in indirect law.

First of all, we need to check whether all the adjusted entries are balanced by the amount of credit.

We need to know that the basic idea of working out the draft of the cash flow statement is to adjust the amount of the items in the balance sheet and the profit and loss account, and adjust the balance of the amount. According to the basic principle of the double entry bookkeeping method, the cash flow statement will also be balanced.

Well, the first step we examine is whether our adjustment entries are balanced or not, to see whether the adjustment is not balanced due to clerical errors.

If all adjustment entries are balanced by credit, let's check whether the balance sheet and profit and loss account are all balanced.

According to the principle of compiling the cash flow statement, if every subject is balanced, the cash flow statement must be balanced.

In practical work, there are often beginners, the subjects that have been adjusted before are adjusted repeatedly, resulting in a balance in the amount of subjects, so the statement of cash flow must be unbalanced.

One of the most common mistakes is the wrong direction, which leads to an unbalance between the balance sheet and the income statement.

Whatever the cause, we only need to check whether the adjustment of the amount of the subjects is correct.

After the above two checks, we can be sure that the cash flow statement can be balanced.

If this time is not balanced, we will only check if there are any clerical errors.

When examining whether the indirect method is well balanced, let's first review the basic principles of the indirect method.

The compilation of indirect method is the process of restoring net profit to the net cash flow of business activities.

The difference between net profit and net cash flow of operating activities is mainly caused by two factors, namely, the factors that affect net profit but do not affect the net cash flow of operating activities, and the factors that affect the net cash flow of operating activities but do not affect net profit.

Then we should check whether these two factors have been adjusted in balance.

Among the adjustment factors in the indirect method, the factors such as impairment of assets, depreciation of fixed assets, amortization of intangible assets, changes in fair value and other factors are relatively easy to determine. Generally speaking, we can directly quote the figures of the profit table.

The factors that can easily lead to imbalance are changes in inventories, changes in operating receivable items and operating payables.

These factors affect the cash flow of business activities, but do not affect net profit.

In the process of compilation, there may be some factors that affect the balance of the statement of cash flow:

1. consideration should be given to the impact of non operating inventories in inventory.

In the schedule, "decrease in inventories (decrease: increase)" should be understood as the inventory here should refer to operating inventories.

In the normal operation of an enterprise, the change of inventory is not just a business activity.

If there is a factor of capitalization of interest on loans, or if the inventory is used for outward investment and for construction projects, it is not an operating inventory, and should be deducted when the schedule is filled out.

According to the standards, the borrowing cost of the enterprise's borrowing, purchase, construction or production should be capitalized if the loan cost is capitalized.

The inventory that meets the capitalization condition of loan cost mainly includes the real estate development products developed by the enterprises (real estate development) for external sale, and the large-scale mechanical equipment manufactured by the enterprises for external sale.

Such inventories usually require considerable construction or production processes to achieve a predetermined sale status.

The term "fairly long" refers to the time required for the purchase and construction or production of assets, usually more than 1 years (including 1 years).

In preparing adjustment entries, we usually do the following adjustment entries:

Borrow: stock

Loan: dividends paid, dividends paid, and interest paid.

We can see that the capitalized interest is included in the inventory but does not affect the net cash flow of operating activities, and should be deducted in the inventory changes.

In addition, if the inventory is used for foreign investment or for construction projects, the corresponding cash flow is the cash flow of investment activities, and should also be adjusted in the change of inventory.

2. consideration should be given to the factors of non operating activities in the business payable projects.

There may be some factors of non business activities in the business payable projects.

The more common factors are as follows:

1) accounts payable for non operating activities.

The payables of fixed assets and intangible assets are reflected in accounts payable or other payables. If the accounts payable in the indirect law are reflected in the changes of the business payable items, the cash flow of operating activities of indirect method is not equal to the net cash flow of business activities in the main table.

For example, a company reflects the payment of intangible assets in other accounts payable.

Borrow: intangible assets 30000

Loans: purchase of fixed assets, intangible assets and other long-term assets to pay cash 20000

Other payables 10000

When preparing the schedule, this economic matter should be reduced by 10 000 yuan in the increase of business payable items.

Because it is reflected in other payables, the corresponding cash flow is the cash flow of investment activities. If it is not excluded from the business payable projects, it will lead to a difference of 10 000 yuan in cash flow between direct and indirect business activities.

2) treatment of fixed assets input tax in indirect method

When preparing adjustment entries, the treatment of input tax is generally reflected in the adjustment of cash payments for goods purchased.

Take a case as an example:

When we confirm the cash paid for the purchase of goods, we make the following entries:

Borrow: main business cost 525292663.96

Accounts payable 13655665.72

Advance payment 219073382.46

Tax payable - value added tax (input tax) 92365911.93

Credit: inventory 11163998.62

Taxes payable - VAT payable (pferred out of tax) - 473170.20

Notes payable 11000000

Cash for purchase of goods receiving services 827750455.25

After finishing this adjustment entry, we adjust the input tax of fixed assets, because it is not the cash paid for the purchase of commodity acceptance services, but should be reflected in the purchase of fixed assets, intangible assets and other long-term assets.

Assuming that the input tax of fixed assets is 33 455 689.78 yuan in this case, the entry is:

Borrow: cash paid for purchase of goods and services 33455689.78

Loans: purchase and construction of fixed assets,

Cash payments with other long-term assets 33455689.78

In this case, in the preparation of indirect method, the 33455 689.78 yuan should be added back in the "increase of business payable items".

Because the cash flow of business activities corresponds to the cash flow of investment activities.

3) the impact of provision for impairment of assets on indirect method.

In practical handling, the provision for impairment of accounts receivable assets has no effect on cash flow itself.

However, because of its impairment through asset impairment, it has an impact on the company's net profit. In the indirect method, we should consider its impact on the net cash flow of business activities.

Example: a company prepared 100000 yuan for bad accounts receivable in 2013 and 50000 yuan in 2014.

In preparing the adjustment entries, our entries are:

Provision for bad debts

Loan: loss of assets impairment 100000

Loan: accounts receivable - bad debt preparation 100000

Ready to return bad debts

Loan: assets impairment loss -50 000

Loans: accounts receivable - bad debts preparation -50 000

From the above entry, we can see that in 2013 and 2014

The effect is not to affect the cash flow.

However, when the indirect method is used, the loss of net assets will affect the net profit, so it should be reflected in the indirect method.

In 2014, in the handling of indirect law, it should be included in the 100000 yuan of assets impairment loss. In 2015, the -50 000 yuan should be included in the loss of assets.

We should pay attention to that, because the credits of our entries are accounts receivable, the subject is reflected in the business receivable items in the indirect law. Because the influence of this factor has been confirmed in the line of impairment loss of the indirect law, we should adjust the changes in the operating receivable items, otherwise the direct and indirect business activities will not balance the cash flow.

The adjustment method should be reduced by 10 000 yuan in 2014 in the reduction of "operating receivable items" in indirect law.

In 2015, an increase of 50000 yuan should be added to the "reduction of operating receivables" in indirect law.

4) the effect of filling in financial expenses on indirect law.

In practical work, some beginners do not understand the principles of the statement of cash flow well. When preparing indirect methods, they will directly fill in the column of "financial expense" in the column of undergraduate financial statements.

In fact, the detailed items contained in the "financial expenses" subjects should be adjusted separately according to the nature of their projects, whether in direct or indirect methods.

Generally speaking, a company's "financial expenses" subjects include: interest payments, interest income, exchange rate changes, fees, etc., in the compilation of cash flow statements should be adjusted separately.

We illustrate it by a company's financial expense schedule.

Amount of current project

Interest income -5 296098.43

Interest expense 36263743.28

Exchange gains and losses 1678355.43

Handling fee 5905564.17

Total 38551564.45

In the compilation of direct law, the general entries are as follows:

When interest income is adjusted

Borrowing: financial cost -5296 98.43

Borrowing: other cash related to business activities received 5296098.43

Adjusting interest expense

Borrowing: financial cost 36263743.28

Loan: cash payments for dividends, profits and interest payments. 36263743.28

Adjustment of exchange gains and losses (assuming both currency gains and losses).

Borrowing: financial cost 1678355.43

Loan: the effect of exchange rate changes on cash 1678355.43

The adjustment time is:

Borrowing: financial cost 5905564.17

Loan: other cash related to business activities: 5905564.17

From the above 4 adjustments, we can see that in the adjustment

When affecting the cash flow statement, the factors that affect the cash flow of operating activities are interest income and handling fee, and the factors that affect the cash flow of financing activities are interest expenses, and the factors that affect the exchange rate fluctuation on cash are exchange gains and losses.

In the compilation of indirect law, if the factors mentioned above are included in the financial cost, the cash flow of direct and indirect operations will be unbalanced.

In preparing indirect method, we only need to include the factors that do not affect the cash flow of business activities into "financial expenses". For those factors that affect net profit and affect the cash flow of business activities, they should not be included in the "financial cost".

Because the basic principle of the compilation of indirect law is to consider only the factors that affect net profit but do not affect the cash flow of business activities and the factors that affect the cash flow of business activities but do not affect net profit.

In this case, only the factors of interest expense and exchange gains and losses should be included in the "financial expenses" item of the indirect law.

5) the accumulated depreciation of fixed assets should be listed in the current period instead of the difference.

In the schedule, the accumulated depreciation of fixed assets should be the actual amount of the current period.

Because the change of fixed assets depreciation period and the end of the term may not only affect the current period, but also factors such as external investment, sale and liquidation of fixed assets will have an impact on the depreciation of fixed assets.

The effect of the liquidation and pfer of fixed assets is reflected in the disposal of the loss of fixed assets, intangible assets and other long term assets (the proceeds are filled in "-").

In addition, it should be noted that the accumulated depreciation of fixed assets is not only included in the depreciation of profit and loss subjects, but also the accumulated depreciation in manufacturing costs.

That is to say, we only need to fill in the credit amount of accumulated depreciation.

Because the accumulated depreciation in manufacturing costs will eventually be included in the inventory.

The current increase in inventory is to be reduced in the schedule. If the amount is included in the accumulated depreciation, it will not affect the cash flow of operating activities.

The above are some factors that may lead to the imbalance of cash flow between direct and indirect business activities.