Cash Flow Statement

Hello, I have the following two questions:

  1. The sub-items in the Cash Flow Statement cannot be adjusted in order.
  2. In the Chart of Accounts, “Employee clearing account” and “Expense claims” do not have Cash Flow Statement options, making it impossible to utilize the “Cash Flow Statement Groups” feature.
    It may be that I am not yet familiar with the software’s functions. Can you please advise on how to resolve these issues?

The cash flow statement hasn’t seen updates in a while. Another example is the inability of users to group inventory control accounts on the cash flow statement. If you have 10 control accounts for inventory items, they will all be individually listed on the statement. While a detailed report is very useful, the ability to group things together would also save time. It’s important to understand that software limitations exist for every application, but if needed, you can export the report to a spreadsheet and make the changes you desire.

RE 1: They never could be adjusted and will not be expected to do so anytime soon.
RE 2: See Use expense claims | Manager Line items from the expense claim will be debited to allocated expense accounts and thus recorded as such in the Profit and Loss Account. In the edit screen of any Profit and Loss account you can assig a Cash Flow Statement group but not to any Balance Sheet account. Although the expense claims are thus directly expended to one of the expense accounts because they “expended” something on the business’ behalf they appear as Liability in the Balance sheet and will change the Bank Account amount and Clear the balance one a payment is made to the expense claimant.

Sorry, English is not my native language. I’m using translation software to communicate.

Thank you for your guidance, but I didn’t quite understand your previous response.

I understand that the account “Employee clearing account” should function similarly to the “Expense claims” account. When creating payroll, it’s possible to select profit and loss-related accounts (such as “salary”) and record liabilities in the “Employee clearing account.” Since the profit and loss account “salary” can be included in the cash flow statement, while “Employee clearing account” and “Expense claims” should not be reflected in the cash flow statement.

I hope this functionality can be improved.

There really is nothing to improve. This is how it should and does function in accrual accounting. Please read the referred guide in my earlier post, especially:

After an expense claim is created, it will be credited to one of three liability or equity accounts, depending on the payer’s type:
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As mentioned these are Balance Sheet accounts, not Profit and Loss accounts.

ChatGPT

I understand that “Expense claims” and “Employee clearing account” are balance sheet accounts.

  1. There’s no issue when creating an “Expense claims” bill because at that point, it’s necessary to select an expense account from the profit and loss statement. This way, when creating an expense claim, it’s not just recorded as a liability on the balance sheet but also as an expense in the profit and loss statement. However, when using “Payslip” to create payroll, only the liability is recorded on the balance sheet without recording the expense on the profit and loss statement. There should be an option when creating payroll via “Payslip” to select the corresponding expense account from the profit and loss statement.


  2. Since “Expense claims” and “Employee clearing account” are balance sheet accounts, they shouldn’t appear on the cash flow statement.

It is bad practice to include Expense Claims in Payslips, they have very different purposes. I would advise to not mix them up. One reason is that it may be confused with extra Income for the the employee and thus need more explanation with tax authorities. Expense claims are used in cases where expenses are made by an authorised person on behalf of the company,

[Added: search the internet on for example “…should expenses be paid through payroll…” there are many more reasons, such as it being unacceptable of an employee purchases something on behalf of the company that they have to wait for reimbursement until salary payment.]

In my country, employee wages are considered operational expenses for the company and should be recorded in the income statement. According to the current software logic, wages cannot be included in the income statement. Is it the same in your country? Are wages not considered operational expenses there?

When you create a Payslip item, there is an option to assign an expense account - I do not understand your problem
Set up payslip items | Manager

Thank you for your guidance, you’re right, it was my mistake. When I was organizing the payroll income statement accounts earlier, I deleted accounts I thought were unnecessary at the time, including the “Staff costs - monthly salaries” account. That’s why the payroll amounts couldn’t link to the income statement. I just need to update the expense account in the interface you mentioned, and it should fix the issue.


The only remaining issue is that “Expense claims” and “Employee clearing account” accounts are appearing in the cash flow statement. Since these are balance sheet accounts, they should not be included in the cash flow statement.

Changes in balance sheet accounts always affect the cash flow statement in one way or another

I already explained why that is. The expense claim records immediately the expenses made on behalf of the company in the Profit and Loss account. That is standard practice. Maybe you should consult an Accountant to help you.

Thank you for your guidance. I’m not a professional accountant, and I’ll take some time to carefully study the points you mentioned.
However, I believe if the “Expense claims” and “Employee clearing account” accounts could be grouped under “Cash Flow Statement Groups,” the cash flow statement would be more concise.
Could I have made an error in my actions that caused this issue to arise?

No it would not because they do not belong to the Profit and Loss statement and thus also not to the Cash Flow group, as also explained (please read the links I provided). You need to have creates a salaries and wages expense account in Chart of Accounts under Profit and Loss and assingn this to Payslip earning items as explained by @Joe91. The moment you create the Payslip the amount will appear in this expense account and simultaneously as a Balance Sheet Account as a liability account (principle of double entry and accrual accounting)

I understood everything you mentioned, and I followed your advice.
The current issue is that the “Expense claims” and “Employee clearing account” accounts are forcibly displayed in the cash flow statement. As mentioned earlier, the funds related to these accounts are already reflected in the income statement, so there’s no need for these accounts to appear again in the cash flow statement.
Perhaps there was a misunderstanding due to software translation that led to confusion about my previous statements. My focus now is on the cash flow statement.

You will also see accounts payable, accounts receivable, etc under Operating activities in a Cash Flow Statement as titles. When clicking on the amounts you will see that these usually constitute a series of payments or receipts.

However, for expense claims, you will only see a link to the claimant and the amount in case you did not yet pay the claimant. The Expense claim will completely disappear from the Cash flow statement when you make a payment to the claimant (reimburse). This is expected behaviour. The Expense claim immediately expended to the items that now belong to the company, so in essence it paid for them and that is reflected in the Expense claims amount. Once the expense claimant is paid then it means the value of the expense is now removed from the bank account (so liability is gone and bank amount decreased.)

As shown in the image below:
a. “Expense claims” and “Employee clearing account” for the year 2022 are both at 0 but are still displayed in the cash flow statement.

b. For the year 2023, “Employee clearing account” has been settled and should be at 0, but it’s not displaying as 0.


This contradicts what you mentioned.

Additionally, the logic behind “Accounts receivable” and “Accounts payable” accounts is correct; regardless of whether these accounts hold funds, they won’t be reflected in the cash flow statement.

The are not 0, they do not give an amount but a hyphen ( - ). You need to enable the “exclude zero balances” see screenshot:

Please this is my last reply. You earlier stated:

and now you again now refer to:

When you click on the amount of the Employee clearing account then you will the entries made against it. This will include Payslips and Payment against those. Similar to the Expense claims as long as you did not make all payments an amount will show.

Are you examining a direct or indirect cash flow statement? The direct statement provides a straightforward account of actual payments made to staff via the employee clearing account, revealing actual outflow of cash.

In contrast, the indirect method uses the different balances of the employee clearing account at two different reporting times to help calculate cash flow.

I didn’t fully understand your perspective; my accounting knowledge is extremely limited, and I’m actively working to improve it.

However, I believe that “Expense claims,” “Employee clearing account,” and “Accounts payable” should follow similar logic. All of these involve expenses (reimbursements, salary payments, purchases), have corresponding expense accounts in the income statement, and are reflected as liabilities in the balance sheet under these three accounts. When payments are made to reimburse, pay employees, or suppliers, the corresponding liabilities decrease or become zero.

The logic behind “Accounts payable” seems reasonable to me: it solely appears in the balance sheet and is accounted for in the cash flow statement through corresponding purchase accounts.

However, “Expense claims” and “Employee clearing account” not only appear in the balance sheet but also in the cash flow statement. Additionally, the cash flow statement contains not only “Expense claims” and “Employee clearing account” but also includes corresponding reimbursement and salary payment accounts from the income statement. This implies that the cash flow statement calculates transactions related to “Expense claims” and “Employee clearing account” twice.

I believe “Expense claims” and “Employee clearing account” should be set up following the logic applied to “Accounts payable.”