Enterprise Accounting Guidelines - Cash Flow Statement (Revised)

DEFINITIONS

3. For the purposes of these Guidelines, the following terms shall have the meanings assigned to them below:

(1) "cash" means an enterprise's cash in hand and deposits that can be used to make payments at any time;

(2) "cash equivalents" means an enterprise's short-term highly liquid investments that are readily convertible to known amounts of cash and present a very small risk of changes in value (where mentioned below, the term "cash" includes both cash and cash equivalents, unless the term "cash equivalents" is mentioned at the same time);

(3) "cash flows" means the inflows and outflows of an enterprise's cash and cash equivalents.

CLASSIFICATION OF CASH FLOWS

4. Cash flows shall be divided into the following three categories:

(1) cash flows generated from operating activities;

(2) cash flows generated from investing activities;

(3) cash flows generated from financing activities.

CASH FLOWS GENERATED FROM OPERATING ACTIVITIES

5. "Operating activities" means all transactions and affairs of an enterprise other than investing activities and financing activities.

6. Cash inflows from operating activities mainly include the following:

(1) cash received for the sale of merchandise or the provision of labour services;

(2) tax refunds received;

(3) other cash received that is related to operating activities;

7. Cash outflows from operating activities mainly include the following:

(1) cash paid for the purchase of merchandise or the acceptance of labour services;

(2) cash paid to or for staff and workers;

(3) all types of taxes paid;

(4) other cash paid that is related to operating activities.

CASH FLOWS GENERATED FROM INVESTING ACTIVITIES

8. "Investing activities" means an enterprise's activities of building up long-term assets and making investments not included in cash equivalents, and disposing thereof.

9. Cash inflows from investing activities mainly include the following:

(1) cash received from the recovery of investments;

(2) cash obtained from the gains of investments;

(3) net amounts of cash received from the disposal of fixed assets, intangible assets and other long-term assets;

(4) other cash received that is related to investing activities.

10. Cash outflows from investing activities mainly include the following:

(1) cash paid in building up fixed assets, intangible assets and other long-term assets;

(2) cash paid for investments;

(3) other cash paid that is related to investing activities.

CASH FLOWS GENERATED FROM FINANCING ACTIVITIES

11. "Financing activities" means activities that cause changes in the size and composition of an enterprise's capital and debts.

12. Cash inflows from financing activities mainly include the following:

(1) cash received from taking in investments;

(2) cash received from the taking out of loans;

(3) other cash received that is related to financing activities.

13. Cash outflows from financing activities mainly include the following:

(1) cash paid for debt repayment;

(2) cash paid for the distribution of dividends and profits or for the payment of interest;

(3) other cash paid that is related to financing activities.

PURCHASE OR DISPOSAL OF SUBSIDIARIES AND OTHER BUSINESS WORK UNITS

14. Cash flows generated from the purchase or disposal of subsidiaries and other business work units shall be treated as cash flows from investing activities and be shown separately.

15. The presented total amount of cash paid or received for the purchase or disposal of subsidiaries and other business work units shall be net from the cash obtained or paid due to such purchase or disposal.

16. An enterprise shall disclose, by mentioning the total amounts in the form of a footnote to the accounting statement, the following information on the purchase or disposal of subsidiaries and other business work units during the period:

(1) the purchase or disposal price;

(2) that portion of the purchase or disposal price that was paid by cash;

(3) the amount of cash obtained from purchase or disposal of subsidiaries and other business work units;

(4) the non-cash assets and liabilities of the subsidiaries and other business work units acquired or disposed of, broken down by major categories.

CASH FLOWS OF FINANCIAL AND INSURANCE ENTERPRISES

17. The classification of the cash flow items of financial and insurance enterprises has its specific characteristics. If the above classification of cash flow items is not applicable to such enterprises, they may, when formulating this statement, determine a reasonable classification according to the special characteristics and cash flow circumstances of their particular industry.

18. The following cash receipt and payment items of financial enterprises shall be treated as cash flows from operating activities:

(1) loans made to outside parties and loan principals collected;

(2) deposits accepted and deposit principals paid;

(3) deposits due to other financial enterprises and deposits due from other financial enterprises;

(4) call loans to other financial institutions;

(5) interest receipts and payments;

(6) collections of loans booked as collected in the preceding period;

(7) (in the case of securities houses) cash received or paid for the sale and purchase of securities;

(8) cash received for lease financing.

19. The cash receipt and payment items of insurance companies relating to terms governing the insurance moneys, insurance claims, annuity refunds and other insurance interests shall be treated as cash flows from operating activities.

FORMULATION OF CASH FLOW STATEMENTS

20. Cash flow statements shall report an enterprise's cash flows by differentiating among those from operating activities, investing activities and financing activities respectively.

21. Cash flows shall generally be reflected according to gross cash inflows and cash outflows. However, cash receipts or payments on behalf of customers and cash receipt and payment items with quick turnovers, large amounts and short maturities shall be presented on a net basis.

The following items of financial enterprises shall be presented on a net basis:

(1) short-term loans made and loan principals collected;

(2) deposit and withdrawal of current deposits and deposits due from other financial enterprises;

(3) deposit and withdrawal of deposits due to other financial enterprises and deposits due from other financial enterprises;

(4) call loans to other financial institutions;

(5) entrusted deposits and entrusted loans;

(6) (in the case of securities houses) sales and purchases of securities.

22. An enterprise's foreign currency cash flows, and the cash flows of a subsidiary established outside the People's Republic of China, shall be translated according to the exchange rate in effect at the date of the cash flow or an average exchange rate. The effects of exchange rate changes on cash shall be treated as adjustments and be shown separately in the cash flow statement.

23. There are some special items, such as losses from natural disasters, insurance claims, etc., that shall be lumped according to their nature under the respective cash flow categories mentioned above and be shown separately.

24. Enterprises shall adopt the direct method to report the cash flows of their operating activities, i.e. the cash flows from their operating activities shall be reflected through the major classes of cash receipts and payments.

When using the direct method, the information on cash flows from operating activities may be obtained in either of the following ways:

(1) the accounting records of the enterprise; or

(2) adjustment of the operating revenue, operating costs and other items of the profit statement on the basis of the following items:

(i) changes in current inventory and operating receivables and payables;

(ii) other non-cash items such as fixed asset depreciation and intangible asset amortization; and

(iii) other items whose cash effects fall under the cash flows from investing or financing activities.

25. In the footnotes to their accounting statements, enterprises shall also disclose information on reconciliation of their net profit to the cash flows from operating activities.

Net profit items to be reconciled mainly include the following:

(1) reserves for losses in asset;

(2) fixed asset depreciation;

(3) intangible asset amortization;

(4) amortization of long-term, pre-paid expenses;

(5) pre-paid expenses;

(6) accrued expenses;

(7) gains and losses from the disposal of fixed assets, intangible assets and other long-term assets;

(8) losses from the retirement of fixed assets;

(9) financial expenses;

(10) investment gains and losses;

(11) deferred taxes;

(12) inventory;

(13) operating receivables;

(14) operating payables;

INVESTING OR FINANCING ACTIVITIES NOT INVOLVING CASH RECEIPTS AND PAYMENTS

26. Major investing or financing activities that do not involve current cash receipts and payments but affect or may in the future affect the financial position of an enterprise shall also be described in the footnotes to the accounting statement, for example, an enterprise's purchase of assets by means of assuming a debt, etc.

SUPPLEMENTARY PROVISIONS

27. These Guidelines shall be implemented as of 1 January 2001.