Cash Flow Statements: Preparing and Reconciling, Defining Cash, Direct vs. Indirect Methods, Classifying Transactions

The cash flow statement may be the most complex and least understood of the primary financial statements. It is wrought with choices and classification issues that practitioners must consider. The first hurdle is defining cash. According to ASC 230, cash includes "not only currency on hand but demand deposits with banks or other financial institutions." Also considered cash are cash equivalents that are: "(a) Readily convertible to known amounts of cash (b) So near their maturity that they present insignificant risk of changes in value because of changes in interest rates." Additionally, cash could be restricted or not and should be reported accordingly.

Once accountants determine what is included as cash, they must decide whether the indirect or direct method is better or required. Then, each cash transaction must be reported within the appropriate section of the statement, either investing, financing, or operating. The classification of an item is not always easily determined, and transactions can appear in more than one section. The purchase of a business, the sale of equipment or property, and theft or casualty losses can be difficult to classify. Perhaps the most troublesome aspect comes after all transactions are classified, and the accountant has a draft of the cash flow statement. The statement itself must reconcile and reconcile with the other financial statements presented.

Listen as our panel of A&A experts guides accounting and auditing professionals through preparing cash flow statements with a particular emphasis on reconciling this intricate statement.

1. Introduction: purpose of cash flow statements
2. Guidance--FASB ASC 230 Statement of Cash Flows
3. Methods
   1. Direct
   2. Indirect
4. Sections of the cash flow statement
5. Special items
6. Disclosures
7. Reconciliation and worksheets
8. Common errors
9. Illustrative examples

The panel will cover these and other critical issues:

• Reconciling the entries of the cash flow statement
• When the direct method should be selected for preparation of the cash flow statement
• Common errors to avoid when preparing the cash flow statement
• Reporting special items on the cash flow statement
• Required cash flow statement disclosures

Learning Objectives

After completing this course, you will be able to:

• Determine stpes to expedite completion of the cash flow statement
• Identify components of the financial section of the cash flow statement
• Decide when the direct method must be used for the cash flow statement
• Ascertain how to classify certain complex transactions on the statement of cash flows

• Field of Study: Accounting
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience, preparing reviewed, compiled, and audited financial statements and the relative disclosures. Specific knowledge and understanding of GAAP, SSARS, and peer review policies.

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