Please take no offense, but this shows. The cash flow statement is probably the hardest financial statement to understand for a novice. Its very title is misleading, because it is not just about money moving. Many aspects of it seem contradictory at first. I recommend you take some time to really study the statement and it’s purpose and structure on one of the many available accounting instruction websites. I assure you that the program’s cash flow statement functions correctly.
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When you get goods on credit (account payable), it’s like having cash at your disposal. This is because you’ve set off a transaction that should normally result in a cash outflow, but since the outflow hasn’t happened yet, it like a cash inflow.
Likewise, when you record an expense claim, the same logic applies. You’ve received something without an immediate payment, essentially boosting your cash. The subsequent payment then counters this increment. With this foundational understanding, I recommend setting up a test business and test every type of transaction and how it affects the cash flow statement.
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@Abeiku has furnished excellent examples of how cash flow statements can seem contradictory.
Yes, @Abeiku did explain this very well.Just to add: An increase in accounts payable be it Expense claims our Employee clearing accounts can positively affect your cash position since accounts payable is money owed to your employee that has not yet been paid. In essence as long as someone is owed cash or similar this is recorded as a liability to the business because it still has to be paid, but as long as it has not been paid it is an increase in the available cash flow for that accounting period. Cash or equivalents came into the business without yet being paid.
Because I have very little knowledge of finance and accounting, I used ChatGPT and Google Bard to check, and the response I received is consistent with my understanding, that is, the “Expense claims” and “Employee clearing account” accounts are the same as the “Accounts payable” account, only affecting liabilities and assets, without affecting the cash flow statement, and only affecting the cash flow statement when making payments.
Out of curiousity, I just also ran ChatGPT 3.5 and it gave the right and thus opposite result to yours:
I also decided to use Google Bard with the same question and it gave the same correct result as ChatGPT 3.5 I just reported. Both AI platforms conclude rightly that these impact cash flow statements on the operating activities similar to how Manager shows these:
Hello, the reason why the two of us obtained different results using ChatGPT and Google Bard may be related to your input of typos. Please use the tool again to retrieve:
Will the generation of reimbursement accounts and the generation of unpaid wages in international accounting standards have an impact on the cash flow statement?
I think the logic here is very simple. When recording “Expense claims” and “Employee clearing accounts”, only liabilities are generated, and cash flow is only generated when payments are made.
I have repeatedly emphasized that these two accounts should follow the same rules as “Accounts payable”, and you have not responded positively to my viewpoint.
Anyway, thank you very much for your reply.
This is becoming tiring, I entered the “correct” one in ChatGTP just now and same result as I presented to you before. I am also concerned about you admitting being a novice and then trying to convince far more experienced people that you are right while even AI proves you wrong. As it clearly concludes (see screenshot further below) that [emphasis added]:
In summary, the generation of reimbursement accounts and unpaid wages will impact the cash flow statement, specifically in the operating activities section, as they involve transactions related to the core business operations and adjustments to working capital.
A cash flow statement usually start with the net profit and loss and then makes adjustments to account for non-cash items which are included in the net profit or loss
In your example, all expenses and payroll charges will be included in the net profit figure
As you are aware, some of these are not cash payments and so they must be removed from the cash-flow statement
This is what the expense claim and employee liability lines do
Asking Chat GPT et al for an answer is just lazy and as we all know these LLM are not like the Pope - they are sometimes wrong, hallucinate and as all IT professionals know - garbage in, garbage out so they depend on how you frame your question
You would be far better off reading an accounting manual or following an accounting class online than arguing here
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I completely agree with your logic and my understanding is exactly the same, but it should not be the form reflected in the current software.
I have been emphasizing that “Expense claims”, “Employee clearing account”, and “Accounts payable” should have the same logic. They are all figures in the income statement (reimbursement, salary, procurement) that are recorded as liabilities when there is no cash payment, that is, recorded in the “Expense claims”, “Employee clearing account”, and “Accounts payable” accounts. At this time, reimbursement, salary, and Procurement needs to be deleted, as experts have pointed out, the impact of the balance sheet on the cash flow statement.
However, the Manager has adopted different processing logic for “Expense claims”, “Employee clearing account”, and “Accounts payable”. I believe that the logic for “Accounts payable” is correct, and “Expense claims” and “Employee clearing account” should also be processed according to the logic of “Accounts payable”.
The logic of “Accounts payable” is: 1. In any case, “Accounts payable” will not be reflected in the cash flow statement; 2. When “Accounts payable” is not zero, the cash flow statement will automatically deduct the number of “Accounts payable”.
The logic of “Expense claims” and “Employee clearing account” is: 1. Regardless of the circumstances, “Expense claims” and “Employee clearing account” are reflected in the cash flow statement; 2. The “reimbursement” and “salary” in the income statement can be reflected in the cash flow statement, and the software backend does not associate the calculation of “reimbursement” and “salary” with “Expense claims” and “Employee clearing account”.
Just now I discovered why the Manager treats “Expense claims”, “Employee clearing account”, and “Accounts payable” differently. When paying the “Accounts payable” for “procurement”, it is possible to clearly identify which “procurement” payment is being associated with. This way, when viewing the cash details of “procurement” in the cash flow statement, the manager can clearly list the details. When paying “Expense claims” and “Employee clearing account”, only the payee can be associated, and it is not clear which reimbursement or salary month it is. Therefore, the cash flow statement can only calculate the total value related to this in the background, but cannot provide details. In order to ensure the rigor of the Manager’s logic, the logic of “Accounts payable” was not adopted. Instead, “Expense claims” and “Employee clearing account” were directly reflected in the cash flow statement.
In response to this situation, I suggest that in the “Chart of Accounts” section, “Expense claims” and “Employee clearing accounts” can be grouped by selecting “Cash Flow Statement Groups”.
Sorry and this is my last reply to you. On all fronts you do not seem to want to learn but to push your point, irrespective of showing you evidence of the contrary. Maybe you want to learn accounting but our time is precious and this seems a waste. So as @Joe91 suggested take a course and then return here. This is my final post and I regret having spend so much time on this, especially during this festive season. I wish you all the best also next year but this is my final reply to you, ever!
They have the same logic. It is you who needs to do a lot of work to understand how these statements are made.
You have a long way to go.
You haven’t been able to point out a bug nor made your argument clear.
You can set up a test business and use screenshots to clearly illustrate your point to better help users to understand your confusion or issues. Who knows maybe you have discovered a bug in the software.
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