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CFO Fundamentals: Your Quick Guide to Internal Controls, Financial Reporting, IFRS, Web 2.0, Cloud Computing, and More by ALLISON I. SHIM, JOEL G. SIEGEL, JAE K. SHIM

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CHAPTER FIVE

Statement of Cash Flows

IN ACCORDANCE WITH Accounting Standards Codification (ASC) No. 230, Statement of Cash Flows (Financial Accounting Standards [FAS] No. 95, Statement of Cash Flows) a statement of cash flows is included in the annual report. This chapter discusses how the statement may be prepared as well as the analytical implications for the CFO. The purpose of the statement is to provide useful information about the company's cash receipts and cash payments. A reconciliation between net income and net cash flow from operations is included. There is also disclosure of noncash investments and financing transactions.

CLASSIFICATIONS OF CASH FLOW

What is the definition of "cash flow"?

The statement of cash flows explains the change in cash and cash equivalents for the period. A cash equivalent is a short-term liquid investment having an original maturity of three months or less. Examples are Treasury bills and commercial paper.

The statement of cash flows classifies cash receipts and cash payments as arising from operating, investing, and financing activities.

IFRS Treatment

International Financial Reporting Standards (IFRS) require a statement of cash flows. Both IFRS and U.S. generally accepted accounting principles (GAAP) specify that the cash flows must be classified as operating, investing, or financing.

What is included in the operating section?

Operating activities relate to manufacturing and selling goods or the performance of services. They do not apply ...

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