ABSTRACT

This section presents standards for cash flow reporting. A statement of cash flows is required as part of a full set of financial statements for all business enterprises other than defined benefit pension plans and certain other employee benefit plans and highly liquid investment companies that meet specified conditions. (Not-for-profit organizations are excluded from the scope of this section.)

A statement of cash flows shall classify cash receipts and payments according to whether they stem from operating, investing, or financing activities. This section provides definitions of each category.

Generally, cash flow information about the gross amounts of cash receipts and cash payments during a period is more relevant than information about net amounts of cash receipts and payments. However, because the net amount of related receipts and payments provides sufficient information when the turnover is quick, the amounts are large, and the maturities are short, the reporting of net cash flows for certain items with those characteristics is permitted. Additionally, certain investing and financing activities of banks, savings institutions, and credit unions may be reported as net cash flows.

Enterprises are encouraged to report cash flows from operating activities directly by showing major classes of operating cash receipts and payments (the direct method). Enterprises that choose not to show operating cash receipts and payments are required to report the same amount of net cash flow from operating activities indirectly by adjusting net income to reconcile it to net cash flow from operating activities (the indirect or reconciliation method). If the direct method is used, a reconciliation of net income and net cash flow from operating activities is required to be provided in a separate schedule.

A statement of cash flows shall report the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows. The effect of the exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents.

Information about investing and financing activities not resulting in cash receipts or payments in the period shall be provided separately.