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The Complete CPA Reference by Joel G. Siegel, Jae K. Shim, Nick A. Dauber

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CHAPTER 3

Financial Statement Reporting: Statement of Cash Flows and Other Disclosures

In addition to the income statement and balance sheet, the CPA must be conversant with:

  • Statement of cash flows
  • Interim reporting
  • Personal financial statements
  • Partnerships

Statement of Cash Flows

According to ASC 230-10, Statement of Cash Flows—Overall (FAS-95, Statement of Cash Flows), a statement of cash flows is required in the annual report. In addition, separate reporting is mandated for certain information applicable to noncash investments and financing transactions.

What is the purpose of the statement of cash flows?

The statement of cash flows:

  • Furnishes useful data regarding a company's cash receipts and cash payments for a period
  • Reflects a reconciliation between net income and net cash flow from operations
  • Shows the net effects of operating transactions on earnings and operating cash flow in different periods
  • Explains the change in cash and cash equivalents for the period

What is a cash equivalent?

A cash equivalent is a short-term, very liquid investment satisfying these two criteria:

1. It is easily convertible into cash.
2. It is very near the maturity date so there is hardly any chance of change in market value due to interest rate changes. (Typically, this criterion applies only to investments with original maturities of three months or less.) Examples: Commercial paper, money market funds, U.S. Treasury bills.

How are cash equivalents disclosed?

The company's policy for ...

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