Concepts, Rules, and Examples

Cash Focus

The statement of cash flows includes only inflows and outflows of cash and cash equivalents. Cash equivalents include any short‐term highly liquid investments (see definition for criteria) used as a temporary investment of idle cash. The effects of investing and financing activities that do not result in receipts or payments of cash are to be reported in a separate schedule immediately following the statement or in the notes to the financial statements. The reasoning for not including noncash items in the statement of cash flows and placing them in a separate schedule is that it preserves the statement's primary focus on cash flows from operating, investing, and financing activities. Thus, if a transaction is part cash and part noncash, only the cash portion is reported in the body of the statement of cash flows.

Classification of Cash Receipts and Disbursements

The statement of cash flows requires classification of cash receipts and cash disbursements into three categories.

Investing activities include the acquisition and disposition of (1) long‐term productive assets or (2) securities held in available‐for‐sale or held‐to‐maturity portfolios that are not considered cash equivalents. Investing activities also include the lending of money and the collection on loans.

FAS 102, as amended by FAS 115, had mandated that cash flows were to be classified as operating cash flows if they originated from the purchase or sale of loans, debt, or ...

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