Statement of Cash Flows (General Reporting Matters)

Statement of Cash Flows

The Handbook requires every organization to present a cash flow statement, or statement of cash flows. (1540.03) The only exception is an investment fund where all of the investments held are highly liquid and substantially all are carried at fair value, and the fund has little or no debt. (1540.02)

In presenting the statement of cash flows, separate disclosure should be made of cash flows from operations and cash flows from investing and financing activities (1540.12). Operating activities are the payments and receipts relating to the revenues and expenses of the organization, Financing activities include the proceeds of borrowings, and payments for capital leases. And generally all other types of cash flows are investing activities in an NPO.

Investing and Financing activities may be presented on a net basis if they are payments or receipts on behalf of a third party, or relate to the purchase and sale of trading assets and short term borrowings (under 3 months). (1540.23, .25)

Cash flows in foreign currencies should use the exchange rate of the date of the trade. (1540.27)

Cash flows from interest and dividends would be presented as operating transactions, whereas interest or dividends from endowments would be financing activities. (1540.31)

Transactions not involving cash should be excluded from the cash flow statement, but non-cash investing and financing transactions should be disclosed in the notes. (1540.41, 48)

The organization should disclose its policy with regards to the classification of cash and cash equivalents. Generally, an investment that is convertible to cash, or one that has a maturity date of less than three months would be cash, But, some of these investments may be classified as trading assets. There should be a breakdown of the make-up of cash and cash equivalents. (1540.43). Any cash within cash and cash equivalents that is subject to external restrictions of its use should be disclosed. (1540.44)

There are two methods that can be used to present the statement of cash flows: the direct method and the indirect method. (1540.20) The direct method shows the actual cash flows: cash paid to suppliers, received from customers and so on. The indirect method shows the change in the cash position by analyzing the change in balance sheet accounts, for example "increase/decrease in accounts receivable". Only the totals need to be presented and not the changes or amounts in each fund.

Of the two possible methods of presentation, the direct method is considered to be a superior presentation but requires a bit more work, and some prefer the familiarity of the indirect method.

Sample Statement of Cash Flows on the Direct Method
Sample Statement of Cash Flows on the Indirect Method