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Cash Flow Statement: Preparation, Presentation and Use

Author/Moderator: Thomas Klammer, Ph.D., CPA
Publisher: AICPA
Availability: In Stock
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Description

Improve your understanding of existing cash flow statement preparation and presentation options, with an emphasis on statement classification and disclosure issues. Evaluate the usefulness of cash flow statement data for internal and external purposes. Consider how the classification and presentation of cash flow information may change as reporting requirements are further modified.

Objectives: 

  • Understand the cash flow reporting requirements of SFAS No. 95 and related standards
  • Make appropriate classifications of transactions and events on the statement of cash flows
  • Answer technical questions related to cash equivalents, net presentation and “noncash” transactions
  • Understand and evaluate internal and external uses of the statement of cash flows
  • Evaluate probable and potential changes that are anticipated in cash flow reporting
Prerequisite: Basic understanding of accounting principles and financial statement preparation

Table of Contents

  • Chapter 0 - Overview
    • Course Objectives
    • Introduction
    • Organization
  • Chapter 1 - Statement of Cash Flows: Summary of Presentation Requirements
    • Learning Objectives
    • Introduction
    • What Is a Statement of Cash Flows?
    • Fundamentals of Cash Flow Presentation
    • Cash Flow Reporting Standards
      • A Required Statement of Cash Flows
      • Cash and Cash Equivalents
      • Gross and Net Cash Flows
      • Classification - Financing and Investing
      • Operating Cash Flows
      • Reporting Noncash Transactions
      • Direct and Indirect
    • Preparation of a Statement of Cash Flows
      • Illustration
      • The Indirect/Direct Method
    • Exercises
      • Exercise 1-1
      • Exercise 1-2
      • Exercise 1-3
  • Chapter 2 - Scope and General Use of the Statement of Cash Flows
    • Learning Objectives
    • Introduction
    • Development of the Statement of Cash Flows
      • Key Historical Points for the Statement of Cash Flows
    • The Cash Concept Advantages and Disadvantages
    • General Uses of the Statement of Cash Flows
    • Developments Related to Cash Flow Reporting
    • Liquidity and Financial Flexibility
      • Liquidity
      • Financial Flexibility
    • Scope of the Cash Flow Standard
      • Exceptions for Defined Benefit Pension Plans
      • Exceptions for Investment Companies
      • For Profit Entity Audit Report Presentation and Examples
      • Non-GAAP Statements, Reviews, and Compilations
    • Exercise
      • Exercise 2-1
  • Chapter 3 - Cash Equivalents and Gross versus Net Presentation Issues and Examples
    • Learning Objectives
    • Introduction
    • Purpose of the Statement of Cash Flows
    • Activity Method Presentation
      • Presentation Approaches
    • Cash Equivalents
      • Selection and Presentation
      • Disclosure Examples
      • Presentations Defining Cash and Cash Equivalents
      • Restricted Cash and Cash Equivalents
      • Strict Cash Concept of Funds
    • Gross versus Net Cash Flow Reporting
      • Presentation Examples - Gross versus Net
      • Possible Presentation Problems
      • Data Collection Problem - Obtaining Gross Amounts
      • Technical Problem - When Is Netting Allowed?
      • Net and Gross Presentation Example
    • Exercises
      • Exercise 3-1
      • Exercise 3-2
  • Chapter 4 - Presentation Issues: Investing, Financing, and Noncash Activities
    • Learning Objectives
    • Introduction
    • Problems of Classification
    • Classification Issues
      • Is It Investing, Financing, or Operating?
    • Interest and Dividends
      • Debt and Equity Investments Special Reporting Rules
    • Installment Sales and Purchases
      • Purchase of Productive Asset
      • Disclosure of Installment Note Payable
      • Installment Sale of Inventory
      • Disclosure Examples
    • Hedge Activities
    • Business Combinations, Segment Dispositions, and Extraordinary Items
    • Reporting Noncash Transactions
      • Issues Related to Noncash Transactions
      • Illustrative Disclosures Related to Noncash Transactions
    • Exercises
      • Exercise 4-1
      • Exercise 4-2
      • Exercise 4-3
      • Exercise 4-4
  • Chapter 5 - Operating Section Presentation Direct or Indirect?
    • Learning Objectives
    • Introduction
    • Issues of Operating Section Presentation
    • Direct versus Indirect
      • Direct Method and Reconciliation
      • Direct Method Advantages
      • Indirect Method
      • Alternative Reconciliations
      • Indirect Method Advantages
    • Illustrative Indirect Method Statements
    • Illustrative Direct Method Statements
    • Exercises
      • Exercise 5-1
      • Exercise 5-2
  • Chapter 6 - Operating Section Issues
    • Learning Objectives
    • Introduction
    • Operations - Miscellaneous Items
      • Interest and Taxes
      • Receivables and Bad Debts
      • Transfers and Servicing of Financial Assets
      • Extraordinary Items
    • Lack of Line Item Reconciliation
      • No Disclosure of the Lack of Reconciliation
      • Why Non-Reconciliation May Be a Problem
    • Business Combinations and Segment Dispositions
      • Illustrative Statement
      • Segment Dispositions
      • Supplemental Disclosures Examples
    • Cash from Operations: Is It Useful?
      • Cash Flow per Share
      • Use of Operating Cash Flow Information
    • Cost of Preparation and the Indirect/Direct Method
    • Comprehensive Example
      • Notes to Consolidated Financial Statements
    • Summary of Statement of Cash Flows Requirements
    • Exercises
      • Exercise 6-1
      • Exercise 6-2
  • Chapter 7 - Cash Flow Reporting: Governmental Entities
    • Learning Objectives
    • Introduction
    • Governmental Entities
      • The Standards
      • Consistent Reporting Rules
      • Classification Is Different
      • Operating Category
      • Noncapital Financing Activities
      • Capital and Related Financing
      • Investing Activities
      • Other Features
      • Modifications for State and Local Governments under GASB No. 34
      • Presentation Example
    • Exercise
      • Exercise 7-1
  • Chapter 8 - Cash Flow Reporting Issues: Not-for-Profits, Financial Institutions, and Foreign Operations
    • Learning Objectives
    • Introduction
    • Industry Specific Reporting Standards
    • Not-for-Profit Financial Statements
      • A Required Statement of Cash Flows
      • Change in Financing Classification
      • Presentation Example
    • Financial Institutions
      • Exemption or More Netting
      • Additional Netting
      • Additional Accounting Standard
      • Additional Arguments Related to Netting
      • Change in Trading Account Classification
    • Foreign Currency Cash Flows
      • Local Currency or Asset and Liability Change Method?
      • The Standard
      • Problems of Implementation
      • Foreign Currency Cash Flows Examples
    • Exercise
      • Exercise 8-1
  • Chapter 9 - Statement of Cash Flows: External and Internal Uses
    • Learning Objectives
    • Introduction
    • External Users
      • General Statement Usefulness
      • Key External Uses
      • Analysts' Uses
      • What Do Analysts Want from the Statement of Cash Flows?
      • Rating Agencies' Uses
      • An Illustrative Use
      • Lenders' Uses
      • What Type of Cash Flow Presentation Do Bankers and Other Lenders Desire?
      • Questions on Which a Lender May Focus
      • Ratios
      • Ratios and Bankruptcy
    • Internal Users
      • Internal Uses of Cash Flow Information
      • Value of Cash Flow Information
      • Cash Management
      • Short-Term Forecasting
      • Budgeting and Cash Budgeting
      • Capital Expenditure Evaluation
      • Top Management Reporting
      • Business Unit Reporting
      • Miscellaneous Uses of Cash Flow Data
      • An Illustrative Use - Not-for-Profit Hospitals
  • Chapter 10 - Ongoing Developments in the Statement of Cash Flows Reporting
    • Learning Objectives
    • IAS 7 - Statement of Cash Flows
    • Possible Revisions to the Statement of Cash Flows
    • Classification Decisions
    • Statement of Cash Flows - Other Tentative Decisions
    • Reconciliation of the Statement of Cash Flows to the Statement of Comprehensive Income
    • Change is Coming to the Statement of Cash Flows
  • Chapter 11 - Ethics Focus: Accounting and Auditing
    • Ethics Overview
    • Recent Developments
    • Spotlight on Independence
    • Key Ethical Dilemmas
    • Addressing Ethical Dilemmas
    • Available Resources
  • Chapter 12 - Latest Developments
  • Appendix A - Statement of Cash Flows Worksheets
    • Learning Objectives
    • Introduction
    • Data Accumulation
    • Worksheets
      • Basic Worksheets
    • WS-I Illustration
      • Example
      • WS-I Initial Worksheet
      • Analytical Process
      • WS-I Partial Worksheet
      • WS-I Partial Worksheet
      • Preparation of Statement
    • WS-II Illustration
      • Example
      • WS-II Initial Worksheet
      • Analytical Process
      • WS-II Completed Worksheet
    • Description of Electronic Spreadsheets
      • CFBASIC - Electronic Worksheet
      • CFBASIC
      • CFADV - Electronic Worksheet
      • Completed CFADV Worksheet with Data
  • Appendix B - Supplemental Problems
    • Exercise B-1-1
    • Exercise B-1-2
    • Exercise B-1-3
    • Exercise B-3-1
    • Exercise B-3-2
    • Exercise B-3-3
    • Exercise B-4-1
    • Exercise B-4-2
    • Exercise B-4-3
    • Exercise B-4-4
    • Exercise B-4-5
    • Exercise B-5-1
    • Exercise B-5-2
    • Exercise B-6-1
    • Exercise B-6-2
    • Exercise B-6-3
    • Exercise B-6-4

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Excerpts

Chapter 0

Overview

Course Objectives

  • Develop an understanding of cash flow reporting requirements.
  • Prepare a statement of cash flows that conforms to the existing reporting requirements.
  • Evaluate whether to use of the direct or the indirect method for presenting operating cash flows.
  • Answer technical questions about how various transactions and events influence the statement of cash flows.
  • Compare the usefulness of different presentations of cash flow information.
  • Explain and illustrate the relationship between the statement of cash flows, the balance sheet, and the income statement.
  • Assess how worksheet templates can ease the statement preparation process.

This course focuses attention on the following questions:

  • What is the statement of cash flows?
  • What information must (should) be part of the statement?
  • How can you generate the required cash flow information?
  • How do you present cash flow information so it is useful internally and externally?
  • What supplemental disclosures should you make and where should you make them?
  • What is the basis for certain classification and presentation requirements?
  • How do you present selected atypical transactions on the statement?
  • What are the direct and the indirect methods?
  • When is net rather than gross cash flow information permitted?
  • What is a cash equivalent?
  • How can cash flow information be used, internally and externally?
  • What special reporting problems exist for financial institutions and entities with foreign operations?
  • How do cash flow statements for not-for-profit entities differ from those of a business entity?
  • How do cash flow statements for governmental entities differ from those of a business entity?

Introduction

The statement of cash flows is an integral part of general purpose financial reports. It however remains a statement that is misunderstood, under-utilized, and even poorly prepared. This course will help you prepare, present, and use the statement of cash flows. Numerous illustrations, examples, and exercises give you a thorough understanding of cash flow information and help you solve technical problems of statement preparation. This course also gives you an opportunity to consider how you can present cash flow information so it is valuable to statement users, external and internal.

Information about an entity's cash inflows and outflows is important. Researchers continue to explore exactly what information about cash flows individuals and organizations need and use. Existing standards for reporting cash flow information provide broad guidance for general purpose reporting. These standards encourage experimentation with the presentation of cash flow data within the broad guidelines of existing reporting standards. The FASB is once again considering whether to review and revise cash flow reporting requirements.

Organization

Examples, illustrations, and hands-on exercises focus your attention on key reporting issues and options. The text materials and the exercises provide answers to inquiries about how and where to present certain information on the statement of cash flows. They will also help you learn how to obtain the necessary data and why it is useful. The text will help you think about presentation issues and relate these issues to your firm, to clients' firms, or to firms whose financial statements you review.

The course progresses, step by step, from the basics of the statement of cash flows to increasingly complex issues and questions. You first develop a general understanding of the statement of cash flows requirements and the related technical and presentation issues. Later chapters provide suggestions for solving these technical and presentation issues. There is special emphasis throughout the material on the potential usefulness of various presentation and disclosure options. Details of the material organization follow.

  • Chapter 1 summarizes and illustrates the fundamentals of cash flow statement presentation. This review of the general requirements of the cash flow standard focuses on statement basics. Completion of an exercise that requires the preparation of a statement of cash flows, using both the direct and the indirect methods, solidifies your understanding of the basic presentation rules.
  • Next, we summarize the basic nature of the statement of cash flows, fundamental statement uses, reasons for a cash definition, and requirements about who must present the statement.
  • Detailed examination of complex technical presentation issues then begins. Illustrations and examples, supplemented by exercises, focus attention on questions of classification, netting, schedules of noncash transactions, and cash equivalents. The usefulness of alternative solutions to these technical issues is examined.
  • There is a careful review of the operating section of the statement of cash flows. Statements prepared using both the direct and the indirect methods are examined. There is an exploration of the rationale and approach to presenting certain activities such as interest and installment sales.
  • Exercises and examples help you assess special problems, questionable classifications, and marginal presentations.
  • There is a chapter on cash flow statements for governmental entities. This material discusses how GASB cash flow statement requirements differ.
  • A chapter on special reporting problems examines the cash flow reporting issues that are unique to not-for-profit entities, financial institutions and entities with foreign operations.
  • Illustrations of how individuals, both internal and external, may use the statements found throughout the manual are included in the final chapter.
  • An appendix includes several worksheet templates to illustrate how to minimize the mechanical problems of statement of cash flows preparation.

Most of the illustrative statements in the text are actual statements of cash flows abstracted from recent financial reports. The names are changed to allow you to focus on the statement content, not the firm.

Preparation and presentation of the statement of cash flows is illustrated using a paper and pencil process. Practically, computer templates or accounting programs facilitate the preparation of the statement of cash flows. Many entities are changing their computer systems to ease statement preparation. The course material makes useful suggestions for this modification process. In addition, the worksheet templates make the manual a continuing reference tool.

The course presentation assumes no advance preparation. If you do receive materials in advance, familiarize yourself with the manual or read the cash flow reporting standard. Do not study the explanations and examples provided. Consider bringing examples of statements of cash flows from your firm or client firms to class.

Material in this manual is the authors' interpretation and application of the pronouncements. Always consult the original standards as the final authority on accounting and disclosure matters. Any quotations from FASB publications in this manual are covered by the following attribution/permission statement: "Copyrighted by the Financial Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, Connecticut, 06856-5116, U.S.A. Reprinted with Permission. Copies of the complete documents are available from the FASB."

Videocourse Details

NASBA Field of Study: Accounting
Level: Basic
Recommended CPE Credit: 16
Important Information on Your CPE Credit
Cash Flow Statement: Preparation, Presentation, and Use
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