Describe the various presentation formats for the Statement of Cash Flows
PRESENTATION FORMATS FOR THE STATEMENT OF CASH FLOWS
Both U.S. GAAP and IFRS permit considerable flexibility with respect to the display of information in the statement of cash flows. There are, however, the following requirements:
(1) Firms must report cash flows from operations, investing, and financing for the current year and the prior two years.
(2) Firms must report the beginning and ending cash balances, and the change in the cash balance. The change in cash must reconcile to the sum of the cash inflows and outflows from operating, investing, and financing activities.
(3) If the firm uses the direct method of reporting cash flows from operating activities rather than the indirect method, it must also provide a separate reconciliation of net income to cash flows from operations.
(4) Within the investing and financing cash flow categories, the presentation for most items should not net cash inflows against cash outflows. Instead, the firm must show them gross. Gross reporting requires, for example, that firms show the amount of cash spent to acquire property, plant, and equipment for the year separately from the amount of cash received on disposals of property, plant, and equipment during the year.
(5) The statement of cash flows does not report nonmonetary, sometimes called noncash, transactions. That is, the statement does not report transactions that affect recognized assets and liabilities on the balance sheet but that do not result in cash inflows or cash outflows. Examples of nonmonetary transactions are the acquisition of equipment in exchange for shares of common stock and the conversion of a firm's debt into common shares. Under both U.S. GAAP and IFRS, nonmonetary transactions do not appear in the statement of cash flows as investing or financing activities, because they do not help in explaining the change in cash. Firms must disclose nonmonetary investing and financing activities in one of three ways: in the body of the statement of cash flows, or in a separate schedule, or in a note.
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