Wiley GAAP: Financial Statement Disclosure Manual. Joanne M. Flood

Wiley GAAP: Financial Statement Disclosure Manual - Joanne M. Flood


Скачать книгу
income to cash flow information. At a minimum, entities using the direct method are required to report separately the following classes of operating cash receipts and payments:

      1 Cash collected from customers, including leases, licensees, and the like

      2 Interest and dividends received

      3 Other operating cash receipts

      4 Cash paid to employees and other suppliers

      5 Interest paid, including the portion of the payments made to settle zero‐coupon debt instruments attributed to accreted interest related to the debt discount

      6 Income taxes paid

      7 Other operating cash payments(ASC 230‐10‐45‐25)

      Entities are encouraged to make further breakdowns that would be useful to financial statement users. For example, disaggregating number 4 above, “cash paid to employees and suppliers,” might reveal useful information.

      The direct method portrays the amounts of cash both provided by and used in the reporting entity's operations, instead of presenting net income and reconciling items. The direct method reports only the items that affect cash flow (inflows/outflows of cash) and ignores items that do not affect cash flow (depreciation, gains, etc.) as in the indirect method described below. The general formats of both the direct method and the indirect method are shown below.

       The effects of all deferrals of past operating activities, and

       All items included in net income that do not affect cash provided for or used for operating activities.(ASC 230‐10‐45‐28)

      Thus, the statement of cash flows prepared using the indirect method emphasizes changes in the components of most current asset and current liability accounts. Changes in inventory, accounts receivable, and other current accounts are used to determine the cash flow from operating activities. Preparers calculate the change in accounts receivable using the balances net of the allowance account in order to ensure that write‐offs of uncollectible accounts are treated properly. Other adjustments under the indirect method include changes in the account balances of deferred income taxes and the income (loss) from investments reported using the equity method. However, short‐term borrowing used to purchase equipment is classified as a financing activity.

      The major drawback to the indirect method involves the user's difficulty in comprehending the information presented. This method does not show the sources or uses of cash. Only adjustments to accrual‐basis net income are shown. In some cases, the adjustments can be confusing. For instance, the sale of equipment resulting in an accrual‐basis loss would require that the loss be added to net income to arrive at net cash from operating activities. (The loss was deducted in the computation of net income, but because the sale will be shown as an investing activity, the loss must be added back to net income.)

Reconciliation of Net Income to Net Cash Flow from Operating Activities
Type of Entity Method Presentation
Business Direct A separate schedule
Indirect Within the statement of cash flows or in a separate schedule.*
Not‐for‐profit Direct Not required, see ASC 953‐320‐45‐29)
Indirect Same as above for business entities.
ASC 230‐10‐45‐29 through 45‐32D

      * If presented separately, the statement of cash flow reports only the net cash flow from operating activities. If the reconciliation is presented in the statement of cash flows, adjustments to net income to determine net cash flow from operating activities must be identified as reconciling items. (ASC 230‐10‐45‐31 and 45‐32)

      Example 6.1: Statement of Cash Flows (without Details of Operating Activities)

Liquid Corporation Statement of Cash Flows For the Year Ended December 31, 20X1
Net cash flows from operating activities $ xxx
Cash flows from investing activities:
Purchase of property, plant, and equipment $(xxx)
Proceeds from sales of investments Xxx
Purchases of investments (xxx)
Sale of equipment Xx
Collection of notes receivable Xx
Net cash provided by (used in) investing activities (xx)
Скачать книгу
Librs.Net