Variation Of Cash Flow Statement

Cash flow statement is considered to be one of the main financial statements that every investor should get familiar. It is the financial statement that shows the inflows and out flows of cash of a company over a period of time. This statement is a great tool for managers and investors to provide how changes in balance sheet and income affect cash. Every investor and businessman should know the importance and advantages of preparing cash flow statement. Besides this, they should also get familiar with the variation of cash flow statement. The following article reveals precise information on variation of statement of cash flow.

It is a well known fact that, Statement No 95 of Financial Accounting Standards Board (FASB) mandated that firms provide cash flow statements. On the other hand, International Accounting Standards Board also issued International Accounting Standard 7 (IAS 7), mandating that firms provide cash flow statements. The rules for cash flow statements of US GAAP and IAS 7 are almost similar but have certain variation or differences. Let’s us find out the certain cash flow statement variation and the differences in rules of US GAAP and IAS 7.

1)      According to IAS 7, cash flow statement requires including changes in both cash and cash equivalents. But as a US GAAP rule, allows the use of cash alone or cash and cash equivalents.

2)       As an IAS 7 rule, in cash equivalents, bank borrowings in certain countries should to be included rather than being considered as a part of financing activities.

3)       IAS 7 permits the inclusion of interest paid in operating activities or financing activities. But as US GAAP rule interest paid to be included in operating activities. This is another variation of cash flow statement rules of US GAAP and IAS 7.

4)      As a US GAAP cash flow statement rule, when using direct method to present the operating activities of the cash flow statement, a secondary schedule should also present statement of cash flow through the use of the indirect method. The IASC strongly advocates the direct method but allows either method. The IASC considers the indirect method less clear to users of financial statements. Cash flow statements are most commonly prepared using the indirect method, which is not especially useful in projecting future cash flows.