Presentation Of The Statement Of Cash Flows

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Presentation of the Statement of Cash Flows The statement of cash flows is a relatively new statement. Focused on cash-basis accounting rather than accrual-basis, the purpose of this statement is to describe the effects of a company’s cash inflows and outflows. This paper will discuss the current standards for the statement of cash flows, the history of the statement, and if the direct method or indirect method is more advantageous for the users. Current Generally Accepted Accounting Principles (GAAP) states, “[i]n reporting cash flows from operating activities, entities are encouraged to report major classes of gross cash receipts and gross cash payments and their arithmetic sum—the net cash flow from operating activities (the direct method)” (ASC-230-10-45-25). In addition, per ASC 230-10-45-30, if a company chooses to report the change in cash flow from operating activities using the direct method, it must also include a separate schedule containing the indirect method, which is a reconciliation of net income to cash flows from operating activities. In choosing to write the standards this way, the Financial Accounting Standards Board (FASB) considered both methods and recognized the advantages of each. However, the board noted that neither method provided enough benefit on its own to justify the required use of one or the other. The board believes that the more comprehensive approach would be to use the direct method in the operating section of the statement of

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