Reporting Format for the Statement of Cash Flows

Reporting Format for the Statement of Cash Flows

• The Statement of Cash Flows must include the following three sections, as defined in FASB Statement 95:

Cash Flows from Operating Activities

Cash Flows from Investing Activities

• Inflows

• Selling property, plant, and equipment.

• Selling investment securities.

• Collecting loans.

Cash Flows from Financing Activities

• Inflows

• Borrowing.

• Issuing stock.

Noncash Investing and Financing Transactions

• Significant noncash investing and financing transactions must be reported separately.

• Example: Issuing common stock in exchange for land.

Converting from Accrual to Cash-Basis Accounting

• Accrual basis revenue includes sales that did not result in cash inflows.

• Cash received from customers can be computed as follows:

Converting from Accrual to Cash-Basis Accounting

Converting from Accrual to Cash-Basis Accounting

Converting from Accrual to Cash-Basis Accounting

Converting from Accrual to Cash-Basis Accounting

Direct Method

• Additional Information

• The corporation sold equipment for $300 cash during the year. The equipment had an original cost of $1,500 and accumulated depreciation of $1,100 at the time of sale.
• The corporation issued a $2,500 mortgage note in exchange for land during the year.
• There was a $1,500 cash dividend paid during the year.

Cash Flow from Operating Activities

Direct Method

Cash Flow from Investing Activities

Cash Flow from Financing Activities

A Comparison of the Direct and Indirect Methods

• Net cash flow is the same for both methods.

• The Direct Method provides more detail about cash from operating activities.

• The investing and financing sections for the two methods are identical.

Indirect Method

Indirect Method

Indirect Method

Indirect Method

The Financial Analyst

The Financial Analyst

End of Chapter 14