Section 3 of the Appendix 5B captures net cash from financing activities: proceeds from share issues, proceeds from borrowings, share issue transaction costs, and repayments of borrowings or related-party loans. On paper it looks like the simplest section on the form, three or four lines with big round numbers. In practice it is the section most likely to be wrong, because unlike Sections 1 and 2, the source transactions rarely arrive through the normal Xero bank feed in a form that maps cleanly to the 5B.
With the June quarter due 31 July, any explorer that ran a placement, drew down a loan facility, or received director funding this quarter needs Section 3 checked before the rest of the form is finalised, not after.
Why Section 3 breaks the pattern of Sections 1 and 2
Operating and investing cash movements arrive as a stream of coded transactions: supplier bills paid, exploration invoices settled, admin costs processed. Xero sees every one of them individually, and coding them correctly is a matter of GL account and tax code discipline.
Financing transactions are different. A share placement typically lands as a single large deposit from the share registry, sometimes net of costs already deducted, sometimes gross with the costs invoiced separately weeks later. A related-party loan might be documented in a board minute and a loan agreement before a single dollar moves through Xero. None of this fits the transaction-by-transaction coding pattern that makes Sections 1 and 2 reconcilable from the bank feed alone.
| Section 3 line item | Common Xero treatment | What to verify before lodging |
|---|---|---|
| Proceeds from issues of equity securities | Single bank deposit from share registry, often net of costs | Gross proceeds and share issue costs are reported separately, not netted against each other in one line |
| Payments for share issue costs | Registry, legal and broker invoices, sometimes paid from a different account or period than the raise itself | All costs relating to the raise are captured in the same quarter as the proceeds, even if invoiced late |
| Proceeds from borrowings | Loan drawdown deposit, sometimes coded to a liability account with no cash-flow tag | The drawdown is tagged as financing inflow, not left sitting as an unclassified liability movement |
| Repayment of borrowings / related-party loans | Manual journal or bank payment coded to a loan account | Director and related-party loan repayments are separately identifiable from third-party debt repayments, for cross-check against Section 6 |
The three errors that show up most in Section 3
Netting proceeds against costs. When a share registry deposits placement proceeds net of its own fee, it is tempting to record the net figure as the full 3.1 proceeds line and move on. ASX guidance expects gross proceeds at 3.1 and share issue costs separately at 3.2. Netting understates both figures and can trigger a query if a prior quarterly or prospectus disclosed the gross raise amount.
Related-party loans hidden inside ordinary borrowings. A loan from a director or a related entity is still a financing activity at Section 3, but it also needs to be identifiable for the Section 6 related-party disclosure. If the loan is coded to a generic "Loans Payable" account indistinguishable from a bank facility, the cross-reference between Section 3 and Section 6 breaks, which is precisely the kind of inconsistency that draws attention. Our companion piece on Section 6 director fees and related-party payments covers the disclosure side of this in detail.
Timing mismatch between raise and costs. A placement can close in one quarter with settlement costs invoiced and paid in the next. Reporting the proceeds in one quarter and the costs in the following quarter is technically accurate to when cash moved, but it can make the quarter with the costs look like an unexplained financing outflow unless the notes to the quarterly activities report reference the prior raise.
Quick check before lodging: if the entity raised capital or drew a facility this quarter, trace the deposit to the executed agreement or prospectus, confirm gross versus net treatment against the actual bank movement, and cross-reference any related-party component against the Section 6 disclosure before the form is finalised.
Where this fits in the quarter's coding, not just the lodgement
The fix for Section 3 starts earlier than lodgement week. A tracking category or a dedicated GL account for financing-related deposits and costs, set up at the time the raise or loan is documented, means the quarter-end reconciliation is confirming a figure that was already coded correctly, not reconstructing it from bank statements and board minutes under deadline pressure. This is the same principle covered in our piece on tracking category setup for Appendix 5B, applied to the one section of the form that Xero's default bank feed coding does not naturally capture.
This is exactly the gap our ASX 5B Automation is built to close. It reads every bank transaction and bill payment for the quarter directly from Xero, applies the entity's classification rules to route financing-related deposits and costs to the correct Section 3 lines, and flags anything that cannot be confidently classified, including related-party financing that needs cross-referencing against Section 6, for CFO review before the form is finalised. Every figure carries an audit trail back to source.
Raised capital or drew a facility this quarter?
We can run your live Xero data through the classification engine and show you exactly how Section 3 ties to the underlying raise or loan, before you lodge on 31 July.
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Syed Samir Ahmad
Founder, Genius Accounting Solutions
CA ANZ | MBA | Salesforce Certified (4x) | Xero Partner