Handbooks | January 2022

 

Insight

Handbook: Statement of cash flows

Latest edition: Our comprehensive guide to the statement of cash flows. Q&As and examples explain key concepts.

Valerie Boissou

Valerie Boissou

Partner, Dept. of Professional Practice, KPMG US

+1 212-954-1723

William Jones

William Jones

Senior Manager, Dept. of Professional Practice, KPMG US

+1 214-840-8232

Lakmini Perera

Lakmini Perera

Senior Manager, Dept. of Professional Practice, KPMG US

+1 414-226-1122


KPMG explains cash flow classification issues and noncash disclosure requirements in detail. We provide interpretive guidance on ASC 230, including illustrative examples and Q&As.

Applicability

ASC 230

  • All companies

Relevant dates

  • Effective immediately

A statement of importance

The statement of cash flows is a central component of an entity’s financial statements. Potentially misunderstood and often an afterthought when financial statements are being prepared, it provides key information about an entity’s financial health and its capacity to generate cash.

The underlying principles in ASC 230, Statement of Cash Flows, seem straightforward. Cash flows are classified as either operating, financing or investing activities depending on their nature. But identifying the appropriate activity category for the many types of cash flows can be complex and regularly attracts SEC scrutiny.

While diverse presentation practices have developed over time, the EITF clarified a series of classification issues in 2016 and changed the presentation of restricted cash and cash equivalents. The consequential amendments to ASC 230 are now effective for all calendar year companies. This is therefore a good time to visit or revisit the ‘how-tos’ in preparing the statement of cash flows.

This Handbook provides an in-depth look at statement of cash flows classification issues and noncash disclosure requirements. We’ve organized it by transaction type, making it easier to identify the answers to the common and not so common questions that you may have. And for practical issues where the guidance remains unclear, we offer our position on how to classify many of these cash flows.

This edition has been updated for the adoption ASU 2014-09 (revenue standard) and other forthcoming ASUs effective in 2021. New in this edition, we address the use of subtotals in the statement of cash flows, the effect of ASU 2020-04 on classification of derivative cash flows, payments for lease termination, government grants and various other classification issues.

Report contents

  • Recent ASUs
  • Objective and scope
  • Format of the statement
  • Classification principles
  • Interim reporting
  • Cash, cash equivalents and restricted cash
  • Working capital accounts
  • PP&E and other productive assets
  • Investments
  • Securitization and other transfers of financial assets
  • Lending activities
  • Debt financing transactions for debtors
  • Derivative instruments
  • Leases – ASC 842
  • Leases – ASC 840
  • Employee benefit plans
  • Share-based payment arrangements
  • Insurance premiums and proceeds
  • Business combinations
  • Transactions with shareholders
  • Discontinued operations
  • Foreign currency matters
  • NFP entities
  • Other cash flow presentation matters

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