Settling the cash flow statement dispute.
The National Public Accountant › Vol. 41 Nbr. 6, June 1996
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Summary
Cover Story
The issuance of Statement of Financial Accounting Standards No. 95 that requires cash flow classification allows corporations to either use the direct or indirect method. The advantage of the former primarily lies in the pertinence of the data given while that of the latter relies on its lesser cost and its ease in relating to accrual-based financial statements. Either method may be used as long as the information contained in the cash flow report is systematic and logical.See the full content of this document
Extract
Settling the cash flow statement dispute.
In December 1987, the FASB finally agreed with a large and growing number of commentators and practitioners that a Statement of Cash Flows (SCF) provides greater utility to investors, creditors and other financial statement users than a statement of funds based on working capital. The Statement of Financial Accounting Standards NO. 95 (SFAS 95) requires cash flow information to be classified into three activities: operating cash flows, investing cash flows and financing cash flows.
This article focuses on FASB treatment of cash flows from operations. SFAS 95 permits companies to report operating cash flows either by presenting gross operating cash receipts and payments (Direct Method) or by presenting a reconciliation of net income adjusted to cash by adding or subtracting the differences between accrual accounting and cash collections and cash payments (Indirect Method). During the exposure and comment period for the 1986 Exposure Draft, the debate over the direct and indirect methods became the most controversial issue associated with the new ...See the full content of this document
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