Accountants' Handbook Volume One: Financial Accounting and General Topics, Eleventh Edition

Chapter 14. STATEMENT OF CASH FLOWS

Judith Weiss, CPA

NATURE AND BACKGROUND OF THE STATEMENT OF CASH FLOWS

(a) PRONOUNCEMENTS ON THE STATEMENT OF CASH FLOWS.

Statement of Financial Accounting (SFAS) No. 95, "Statement of Cash Flows," issued in December 1987, establishes standards for providing a statement of cash flows in general purpose financial statements. The SFAS No. 95 superseded Accounting Principles Board (APB) Opinion No. 19, "Reporting Changes in Financial Position," issued in 1971, which first elevated the funds statement to the status of a basic financial statement. The SFAS No. 95 changes the focus of the funds statement from one based on various definitions of funds, principally working capital or cash, to a focus on changes in cash. Under APB Opinion No. 19, funds were defined variously as cash, cash and short-term investments, quick assets, or working capital. The current uniform focus on cash should result in greater financial statement comparability. The cash focus also conforms more closely to the underlying concepts of SFAC No. 5, "Recognition and Measurement in Financial Statements of Business Enterprises," issued in 1984. The SFAC No. 5 (par. 13) states that a full set of financial statements for a period should show, among other things, cash flows during the period. Paragraph 52 points out:

A statement of cash flows directly or indirectly reflects an entity's cash receipts classified by major sources and its cash payments classified by major uses during a period. ...