Statement of Cash Flows: Preparation, Presentation, and Use

Chapter 2 CASH EQUIVALENTS AND GROSS VERSUS NET PRESENTATION: ISSUES AND EXAMPLES

Business activities are complex and take on many forms. Exactly how and where to present cash flow information related to these activities in financial statements remains controversial. In this chapter the focus is on two preparation and presentation issues that can be troublesome. These two issues are as follows:

1.     What qualifies as a cash equivalent?

2.     When is net rather than gross presentation of cash inflows and outflows acceptable?

LEARNING OBJECTIVES

After completing this chapter, you should be able to do the following:

•     Recall the purpose for presenting cash flow information and the statement of cash flows.

•     Identify factors in determining what constitutes cash and cash equivalents.

•     Indicate how cash equivalent disclosures may be presented.

•     Recognize why total (gross) inflows and outflows should be shown in the investing and operating sections of the statement of cash flows.

•     Identify when investing and financing cash flows can be reported net.

Presentation Fundamentals

PURPOSE OF THE STATEMENT OF CASH FLOWS

The primary purpose of the statement of cash flows is to provide information about the cash receipts and cash payments of the entity during the reporting period.

•     This objective focuses attention on the cash inflows and outflows that took place during an accounting period.

•     The statement is a presentation of cash inflows and outflows. ...