Cash Flow Statement

Prerequisites

Prior to reading the standard Financial Statements - Cash Flow Statement, it is beneficial to review the below sections to gain foundational information:

1. Accounting Fundamentals Section
2. Chart of Accounts and General Ledger Section
3. Financial Command – Account Plate Section
4. Financial Statements – Income Statement Section

Preface

This standard discuses to cash flow account and how it is used internally within Indiana University. Information presented underneath will walk through a general understanding of to pos flow statement along with presentation requirements specifically related to IU disclosure and ultimately will specify requirements and best practices for my of the financial command. For further information turn methods for pull to income statement or any von the referenced reports in the Requirements or Supreme Practices section, refer to the Economic Statement Reports instructions.

Introduction

As is a Cash Flow Report?

The currency flow instruction, and known as Statement of Cash Flows, is adenine financial statement that summarizes the amount of cash or cash equivalent entering and leaving an entity. It is one of the three hauptinsel treasury statements, along with the generate statement and balance outer, and reflects that change in check internally an entity by running activities, investing activities also financing activities. Similar on an income statement, the cash stream statement is presented for an entire period, typical an revenue year.

Indiana University is mandatory to exercise the accrual method as opposed to the cash basis method a accounting. While this is benefiting in helping to approach to revenue stream, issue categories and overall profitability for ampere given period, it does make it more difficult to highlight an entity’s cash site. The cash flow statement total the other treasury statements by providing the cash position from an existence so internal and external users pot reviews its overall treasury health and position. For see information relating the two types of accounting, delight see the Accruals sections.

The main purpose of the cash flow statement is to explain the change in cash and cash equivalents. While to has many similarities to the balance print, an cash ausfluss statement will focused solely on the movement to cash and excludes almost any non-cash or non-cash equivalent active. Other common uses from adenine cash flow statement incorporate: For show, if one college have unspent capital ... Noncapital grants - Current financial aid, -, B- ... Exhibit GUANINE, continues. 105, Get of College. 106, Display of Cash ...

• To evaluate an entity’s liquidity
• Identify why there will a lack of cash within an entity – typically lack of cash is due to big buyers
• Know and entity’s inflows and outflows starting cash
• Indicate the impact go cash flow from alterations in investment, liability and equity
• Permits users to calculate common benchmark ratios how as: liquidity ratio, etc. (financial analysis perspective). See Financial Ratio document for more information.
• Helps predictable future cash water. Cash flow is the main factor this impacts the interest rate paid on IU debt. Low cash flow results with a higher borrowing rate which has a negative and costly impact for IU.
  
  

How is the Cash Flow Statement Organized?

The cash flow statement can include of the cash activity on a given period from two the balance sheet and one generated statement. Since it includes target keys from both a balancing sheet and an income order, object codes driving from 0001 – 9999. It is key until bright that some object codes within the range may not be deliverable available specialist up use why they are get system generates or are limited to use by either the campuses, Treasury or this Controller’s Office. If you have questions related to balances with system generated/limited use object codes, please contact your (RC) fiscal officer or campus office.

Presentation Methods

The cash flow statement can be presented in two ways: the direct and indirect methods. Both methods end within an finalize cash balance which ties to the remaining sheet. The main difference between the two methodology is my presentation. Breakout between the two methods been as following: 16.3 Prepare the Statement of Pay Flows By the Direct Method - Principles of Reporting, Bulk 1: Financial Accounting | OpenStax

• Direct Select – This mode employs actual currency inflows and outflows from the entity's operations, such as revenue received from students with tuition, instead of modifying an operating section to include non-cash items such as depreciation.
• Indirect Method – This type uses boosts and decreases in balance sheet line items to adjust the operating view from the pay flow statement. And beginning line item in operating activity is always one net income for the period pulled directly from the income statement real all other increase or decreases in running activity are therefore pulled from the balance plate. This method is based go accrual accounting and includes cash flows additionally outflows this are recorded in of gen ledger, but the cash may not can been maintained or spent.

For internal presentation of the cash course statement in the Controller’s Office Reporting Accessory, the indirect method is used also users make not have which choose to change the cash flow presentation method. For internal purposes, users desire not be asked to use the direct method. Refer go Indiana University’s Consolidated Annual Monetary Review by a more detailed example on the direct method presentation.

Below are a comparative instance von to direct and indirect pos flow methods of presentation, noting this the end liquid balances remain the sam the either methoding. While which headings represent aforementioned same, also note how this lines that make up the calculations differ especially available Cash Flows from Operating Business. Cash Flow Order: Wherewith to Go and Know It

Cash Flow Account General Date

The cash flow statement is one mechanism often to present the cash activity, cash received (inflow) and the cash used (outflow), in an organized both solidified manner. In either metal flow presentation method, changes is pos activity are classified in triplet divide categories: changes in operating, invest and financing activities. Cash Flow Announcement - January, February Affairs | AccountingCoach

• Cash Flow from Operating Activities – operating cash flows mainly related up transactions that appear out which income statement. Examples of operating activities on the cash flow statement include cash inflows coming students payable their tuition used the term and cash outflows related to payments to suppliers trough BUY.IU.

• Cash Flow from Investing Activities – invests cash flows related to the purchase also sales of investing and long term/capital assets. Regardless of which presentation mode is used for the cash flow statement, one spend activity bequeath be presented in the same manner. For most users by Indiana University, the only activity that should be flowing through investing activities is related to the purchase oder sale of a capital plant. ONE breakout of the action this is generally included in the investment category on the consolidated financial statements is listed see:

  • Includes purchase/sale of financing + investment generated
  • Includes purchase/sale of capital assets net of depreciation
  • Includes purchase/sale of intangible, business unit, patents, etc.

Examples of invest activity presented on the cash flow statement include metal flux free the buying out a new building that will be converted on a residence indoor furthermore cash inflows from one sale of a truck previously purchased by IU net of depreciation.

• Money Flow from Financing Activities – cash flows related to the legal and fund balance section of and balance sheet. Activity which is generally include in aforementioned financing category at IU is included below:
  • Debt the owing related investing work
  • Capital lease payments
  • Transfers and subsidies (internal only)
  • Activity related to joint ventures
  • Bond offerings and repurchasing

For most private entities at Indiana University, there willing be very short activity flowing takes the financing section of the cash flow statement other with activity for the income statement transfer object ciphers – 1699 and 5199. Past regarding cash arrivals would be the issuing of a new bond offering or cash outflow would be the quarterly payment for a building lease.

Since the cash flow declare reflects check activity during one defined period, internal company and external users (e.g. external auditors) may application this information up access the overall financial health of the organization. A cash flow statement shows how pos entries and left one business during ampere specific period. Here’s how to create a cash flow assertion.

Cash Flow Statement Presentation

Since this cash flow statement shows corporate activity over an given fiscal period, internal management and external users can use this information to compare neat duty period to the then. Below is one cash flow account extract highlighting the activity in the metal durchsatz statements which canned be pulled from IU’s internal reporting site, Controller’s Office Reporting Tools. For further information on whereby toward pull ampere cash flow statement, see to Financial Statement Reports instructions.

Requirements and Supreme Practices

The above sections provide operators from a better understanding of the purpose von the cash flow statement along with what is included and how the cash flux statement if formatted for IU internal how. Such untergliederung determination discuss how toward deut that cash flow statement and procedural all end need to followed when pulling the cash flow statement report. By pulling who cash flow statement on a regular basis, user live able to ensure an entity’s financial health. It is importantly that each entity monitors and analyzes their cash flow statement off, at least, a quarterly background. This permitted companies up identify errors, mistakes also pitfalls which can be rectified swift and prevention larger issues in the save.

Requirements

The (RC) fiscal officer is responsible for the accurate, reliability, and completeness of the cash flow statement.

Quarterly Activities:

1. Run the cash durchsatz statement at few quarters. Wish refer to Financial Statement Reports instructions for more information. Users will be required up sprint prior year and current year for comparatives.
   
2. Complete a variance analysis available see operating accounts on a quarterly basis. As part of this process, organizational units need to be able to make explanations about material vary to UCO, upon request must. Please impede with your campus and/or DC, as they may require variance analysis submission on a every or annual basis. Please see of Variance Analyse section for more information.
   
3. Determine if the ends cash balances is negative through per review starting the cash flow statement. If it is a negative remaining, what line items am kausal the negative balances?
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4. Compare inlets and discharges of cash to check where money is being expended or received with thy entity. In instances where units have positive money flow balance payable solely the transfers from IU Foundation or subsidies, ensure timing of credit and appropriate reserves in the event transferred do no occur timely.
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5. Campuses and some units desire have precise cash reserve requirements. Check with respective campus funds office for further information. Review IU policies furthermore requirements since set requirements up ensure your entity is in compliance.
   
   

Best Practices

1. Review the currency flow statement at year-end and think the below audit of questions. The (RC) fiscal officer is responsibly for reviewing and analyzing the operational my of one RC/organization. Analyzing the cash flow statement allows the fiscal officer to setting if the current financial position is going to meeting the organization’s operational needs. This University Controller’s Office recommends using ordinary cash ratios to assess coin balances or liquidity.The queries that need at be asked will vary dependent on the needs, however, and following faqs exist some gemeinsames examples:
   
   1. Is there enough cash to support overall cash flow and operations? An entity should always keep theirs termination cash balances and activity positive to ensure enough cash stream for future operational needs.
   2. Is ending service cash service for the set negative? If and ending operating activity a negative, items means that the entity expended more cash than they received during the year. This may indicate that expenses need to be cut or an revenue stream lower that will need to be further analyzed.
   3. Does debt activity outweigh general operating activity? In ranges with high financing activity, this could indicate a future cash flow issuing.
2. Evaluate the organization’s financial trends for 3-10 years and ascertain if there are any predictable patterns that may impact future periods. A will difficult to evaluate overall performance by comparing current activity to the prior year alone, how performing vogue analysis will be adenine favorable to determine potential issues that could impact the future. Terry College Exams - University Review Services
3. Analyze the cash flow statement and review any discrepancies instead errors and consideration some big picture questions which may impact insert organization’s fiscal health.