Cash Flow Statement questions have appeared consistently in VCE Accounting examinations and have been repeatedly identified in Examiner’s Reports as a source of avoidable mark loss. What makes these questions particularly costly is that many students believe they are straightforward once the format is memorised. The evidence from multiple years of reports shows the opposite. Students often understand the structure of the statement but fail to apply it accurately to the data provided.
Across the 2019 to 2023 examinations, Examiner’s Reports highlight the same core problems appearing again and again, regardless of cohort or minor Study Design adjustments.
Misclassification of cash flows by activity
One of the most consistent issues noted in Examiner’s Reports is incorrect classification of cash flows as operating, investing, or financing activities.
In the 2023 examination, a significant number of students correctly calculated cash received from customers and cash paid to suppliers, yet placed one or both amounts under the wrong activity heading. The Examiner’s Report notes that this error reflects misunderstanding of the purpose of the Cash Flow Statement rather than a calculation issue.
Similarly, in the 2021 exam, students frequently classified loan repayments incorrectly by treating the entire payment as an operating cash flow. The Examiner’s Report clarified that repayments of principal should be classified as financing activities, while interest payments are operating activities. Students who failed to separate these components lost marks even when their total cash flow was numerically correct.
These errors suggest that students memorise lists of examples without understanding the underlying principle that operating activities relate to the main revenue-generating operations of the business, while investing and financing activities relate to long-term asset management and capital structure.
Confusion between profit and cash flow
Another recurring theme across multiple Examiner’s Reports is students treating profit figures as if they were cash movements.
In the 2022 examination, students were provided with information that included depreciation expense. The Examiner’s Report notes that many students either attempted to include depreciation as a cash outflow or failed to adjust for it appropriately when reconciling net profit with net cash from operating activities.
This error reflects a fundamental misunderstanding of accrual accounting versus cash accounting. Depreciation affects profit but does not involve a cash movement. Students who fail to recognise this distinction demonstrate a gap in conceptual understanding that is penalised consistently.
Incorrect handling of inventory and accounts receivable adjustments
Inventory and accounts receivable adjustments are another area where marks are frequently lost.
In the 2020 examination, Examiner’s Reports highlighted that students often adjusted for inventory movements in the wrong direction. For example, an increase in inventory was sometimes treated as an inflow of cash rather than an outflow. Students who applied a memorised rule without thinking through the logic of cash movement were penalised.
Similarly, changes in accounts receivable were frequently misinterpreted. Students sometimes treated an increase in accounts receivable as increased cash received from customers, rather than recognising that it represents revenue not yet collected in cash. These errors were common enough to be specifically addressed in multiple reports.
High-scoring responses consistently demonstrated an ability to reason through what had actually happened to cash, rather than relying on remembered adjustment rules.
Structural and presentation errors
Cash Flow Statement questions also revealed persistent structural issues. Examiner’s Reports from 2019 through to 2023 repeatedly mention missing headings, incorrect ordering of activities, and failure to show working where required.
In some cases, students used the correct figures but failed to label them correctly, or omitted the net increase or decrease in cash. These errors resulted in lost marks even when the underlying understanding appeared sound.
The VCAA has been clear that presentation in Accounting is not decorative. It is evidence of understanding. A Cash Flow Statement that does not follow the required format cannot receive full marks, regardless of the accuracy of individual figures.
Carry-forward errors and consequential marking
Another important issue raised in Examiner’s Reports is students misunderstanding how consequential marking works.
In the 2023 report, assessors noted that many students abandoned consistency once they suspected an earlier error. Students changed figures mid-question or attempted to “correct” earlier work without recalculating later sections properly. This behaviour often resulted in more marks being lost than necessary.
Consequential marking can only be applied when students carry their original figures through logically and consistently. Students who panic and alter figures inconsistently lose this protection.
Why Cash Flow Statements remain highly discriminating
Cash Flow Statement questions continue to be used because they assess multiple skills simultaneously. Students must interpret data, apply accounting principles, classify information correctly, and present it in a structured format. A weakness in any one of these areas is enough to reduce marks.
The Examiner’s Reports show that students who understand Accounting as a system of decision-making, rather than a series of templates, perform far more reliably on these questions.
How ATAR STAR addresses Cash Flow Statement performance
At ATAR STAR, Cash Flow Statements are taught as reasoning tasks, not formatting exercises. Students are trained to justify why each item belongs in a particular section and to explain the cash impact of non-cash items before recording anything.
This approach supports students who are already confident with calculations but lose marks through misclassification, as well as students who struggle to connect profit-based information to cash-based reporting.