Wiley GAAP: Practical Implementation Guide and Workbook

Chapter 4. STATEMENT OF CASH FLOWS (ASC 230)

INTRODUCTION

The statement of cash flows presents information about cash receipts by and payments to an entity during a period, as well as information about the entity's investing and financing activities. Since the ultimate objective of investment and credit decisions is the maximization of net cash inflows, information for assessing the amounts, timing, and uncertainty of prospective cash flows is needed by potential investors, creditors, and others making investment and credit decisions.

SCOPE

The requirements of ASC 230 apply to all entities, including both businesses and not-for-profits that prepare "general-purpose financial statements" that have to be presented in accordance with generally accepted accounting principles (GAAP).

DEFINITIONS OF KEY TERMS

Direct method. A method that derives the net cash provided by operating activities from the components of operating cash receipts and payments as opposed to adjusting net income for items not affecting cash.

Financing activities. The transactions an entity engages in to acquire and repay capital (e.g., borrowings, sale of capital stock, repayments, etc.).

Indirect method. A method that derives the net cash provided by operating activities by adjusting net income for revenue and expense items not resulting from cash transactions.

Investing activities. The transactions the entity engages in that affect its investments in noncurrent assets (e.g., purchase or sale of plant, property, and equipment). ...