01 Jun A research article about Government Accounting Standard Board (GASB) topic 2450 – Cash Flow Statements; Cash Flows from Operating Activities standard. See attached, pages 6 &
A research article about Government Accounting Standard Board (GASB) topic 2450 – Cash Flow Statements; Cash Flows from Operating Activities standard. See attached, pages 6 & 7.
Requirements:
1) APA Style 7th ed
2) Minimum of three references
3) 6-8 pages not including coversheet and reference page
4) Targeted audiences are journal subscribers. So a title that entices subscribers to read is necessary. Also include graphics, tables, or any other visualizations may needed to attract readers.
5) Also need a PowerPoint presentation for the article.
NO. 063 SEPTEMBER 1989
Governmental Accounting Standards Series
Statement No. 9 of the Governmental Accounting
Standards Board
Reporting Cash Flows
of Proprietary and Nonexpendable Trust Funds
and Governmental Entities That Use Proprietary
Fund Accounting
Governmental Accounting Standards Board of the Financial Accounting Foundation
For additional copies of this Statement and information on applicable prices and discount
rates, contact:
Order Department
Governmental Accounting Standards Board
401 Merritt 7
PO Box 5116
Norwalk, CT 06856-5116
Telephone Orders: 1-800-748-0659
Please ask for our Product Code No. GS09.
The GASB website can be accessed at www.gasb.org.
i
Summary
This Statement establishes standards for cash flow reporting. It requires a statement
of cash flows (instead of a statement of changes in financial position) as part of a full set
of financial statements for all proprietary and nonexpendable trust funds and
governmental entities that use proprietary fund accounting. It exempts public employee
retirement systems and pension trust funds from the requirement to present either a
statement of cash flows or a statement of changes in financial position.
This Statement requires that a statement of cash flows classify cash receipts and
payments according to whether they stem from operating, noncapital financing, capital
and related financing, or investing activities, and it provides definitions of each category.
Governmental enterprises are encouraged to report cash flows from operating
activities directly by showing major classes of operating cash receipts and payments (the
direct method), although the indirect or reconciliation method may be used. If the direct
method is used, a reconciliation of operating income to net cash flow from operating
activities is required to be provided.
Information about investing, capital, and financing activities not resulting in cash
receipts or payments in the period is required to be provided separately.
This Statement is effective for annual financial statements for fiscal years beginning
after December 15, 1989. Restatement of financial statements for earlier years provided
for comparative purposes is encouraged but not required.
Unless otherwise specified, pronouncements of the GASB apply to financial reports of all
state and local governmental entities, including public benefit corporations and
authorities, public employee retirement systems, and governmental utilities, hospitals,
colleges, and universities. Paragraph 5 discusses the applicability of this Statement.
ii
Statement No. 9 of the Governmental Accounting
Standards Board
Reporting Cash Flows of Proprietary and
Nonexpendable Trust Funds and Governmental Entities
That Use Proprietary Fund Accounting
September 1989
Governmental Accounting Standards Board of the Financial Accounting Foundation
401 Merritt 7, PO Box 5116, Norwalk, Connecticut 06856-5116
iii
Copyright © 1989 by Financial Accounting Foundation. All rights reserved. Content
copyrighted by Financial Accounting Foundation may not be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior written permission of the
Financial Accounting Foundation.
iv
Statement No. 9 of the Governmental Accounting Standards Board
Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and
Governmental Entities That Use Proprietary Fund Accounting
September 1989
CONTENTS
Paragraph
Numbers
Introduction and Background Information …………………………………………………………….1–4
Scope of This Statement ……………………………………………………………………………………1
Background ………………………………………………………………………………………………….2–4
Standards of Governmental Accounting and Financial Reporting …………………………..5–37
Applicability of This Statement ………………………………………………………………………….5
Financial Reporting of Cash Flows……………………………………………………………………..6
Purpose of a Statement of Cash Flows ………………………………………………………………..7
Focus on Cash and Cash Equivalents …………………………………………………………….8–11
Gross and Net Cash Flows ………………………………………………………………………….12–14
Classification of Cash Receipts and Cash Payments ………………………………………15–28
Distinguishing between Capital and Noncapital Financing …………………………………29
Content and Form of a Statement of Cash Flows …………………………………………..30–36
Information about Noncash Investing, Capital, and Financing Activities ……………….37
Effective Date and Transition ………………………………………………………………………………..38
Appendix A: Basis for Conclusions …………………………………………………………………..39–74
Appendix B: Illustrative Statement of Cash Flows………………………………………………75–77
Appendix C: Codification Instructions ……………………………………………………………………78
1
Statement No. 9 of the Governmental Accounting Standards Board
Reporting Cash Flows of Proprietary and Nonexpendable Trust Funds and
Governmental Entities That Use Proprietary Fund Accounting
September 1989
INTRODUCTION AND BACKGROUND INFORMATION
Scope of This Statement
1. This Statement establishes standards for reporting cash flows of proprietary and
nonexpendable trust funds and governmental entities that use proprietary fund
accounting. 1
This Statement also eliminates the requirements for public employee
retirement systems (PERS) and pension trust funds to provide a statement of changes in
financial position. It supersedes the June 15, 1987 GASB Codification of Governmental
Accounting and Financial Reporting Standards Section 2200, ―Comprehensive Annual
Financial Report,‖ paragraph .106, and related requirements in that section, in Section
2600, ―Reporting Entity and Component Unit Presentation and Disclosure,‖ and in
Section Pe5, ―Pension Funds—Accounting.‖ 2
1
GASB Codification Section 1300, ―Fund Accounting,‖ paragraph .102b, states that proprietary fund types
―are used to account for a government’s ongoing organizations and activities that are similar to those often
found in the private sector (enterprise and internal service funds). All assets, liabilities, equities, revenues,
expenses, and transfers relating to the government’s business and quasi-business activities—where net
income and capital maintenance are measured—are accounted for through proprietary funds‖ (footnote
reference omitted). Also, as stated in Codification Section 2200, paragraph .106b(3), nonexpendable trust
funds are similar to proprietary funds and should be reported similarly. 2
Further references to the Codification are abbreviated. For example, Section 2200, paragraph .106, is
referred to as Cod. Sec. 2200.106.
2
Background
2. In November 1987, the Financial Accounting Standards Board (FASB) issued
Statement No. 95, Statement of Cash Flows. That Statement establishes standards for cash
flow reporting for all business enterprises. It supersedes Accounting Principles Board
(APB) Opinion No. 19, Reporting Changes in Financial Position, and requires a
statement of cash flows in place of a statement of changes in financial position as part of a
full set of financial statements.
3. FASB Statement 95 points out that since Opinion 19 was issued, cash flow
information has gained significance. Paragraph 13 of FASB Concepts Statement No. 5,
Recognition and Measurement in Financial Statements of Business Enterprises, states that
―a full set of financial statements for a period should show: . . . [c]ash flows during the
period.‖ Paragraph 78 of GASB Concepts Statement No. 1, Objectives of Financial
Reporting, also focuses on the need for, and importance of, cash flow information (Cod.
Sec. 100.178b). It states that an objective of financial reporting is to ―provide information
about how the governmental entity financed its activities and met its cash requirements.‖
4. To provide guidance on cash flow reporting by proprietary and nonexpendable trust
funds and governmental entities that use proprietary fund accounting, the Board
concluded that the provisions of FASB Statement 95 could be adapted to reflect more
closely the nature of governmental operations. The major differences between this
Statement and FASB Statement 95 are that (a) four categories are used for classifying
cash transactions instead of the three required by FASB Statement 95 and (b) the
―operating‖ category is more narrowly focused. The categories were redefined
accordingly.
3
STANDARDS OF GOVERNMENTAL ACCOUNTING AND FINANCIAL
REPORTING
Applicability of This Statement
5. The provisions of this Statement are applicable to proprietary funds, nonexpendable
trust funds, and governmental entities that use proprietary fund accounting, 3
including
public benefit corporations and authorities, governmental utilities, and governmental
hospitals. 4
PERS and pension trust funds are exempt from the requirement to present a
statement of cash flows. In addition, PERS that report in accordance with NCGA
Statement 6, Pension Accounting and Financial Reporting: Public Employee Retirement
Systems and State and Local Government Employers, and pension trust funds are not
required to present a statement of changes in financial position. However, PERS and
pension trust funds are not precluded from presenting a statement of cash flows if the
information provided is considered useful.
Financial Reporting of Cash Flows
6. Governmental enterprises should present a statement of cash flows for each period
for which results of operations are reported.
Purpose of a Statement of Cash Flows
7. The primary purpose of a statement of cash flows is to provide relevant information
about the cash receipts and cash payments of an entity during a period. When used with
related disclosures and information in the other financial statements, the information a
statement of cash flows provides should help financial report users assess (a) an entity’s
ability to generate future net cash flows, (b) its ability to meet its obligations as they come
3
Unless otherwise noted, future references in this Statement to affected funds and entities will simply be to
―governmental enterprises.‖ 4
Some governmental colleges and universities report their transactions and balances within the
governmental model using National Council on Governmental Accounting (NCGA) Statement 1,
Governmental Accounting and Financial Reporting Principles. This Statement applies to the proprietary and
nonexpendable trust funds of those governmental colleges and universities. However, this Statement is not
required to be applied to those governmental colleges and universities that follow the specialized industry
accounting and reporting principles contained in the American Institute of Certified Public Accountants
(AICPA) Industry Audit Guide, Audits of Colleges and Universities (1975).
4
due, (c) its needs for external financing, (d) the reasons for differences between operating
income (or net income if operating income is not separately identified on the operating
statement) and associated cash receipts and payments, and (e) the effects on the entity’s
financial position of both its cash and its noncash investing, capital, and financing
transactions during the period. To do this, a statement of cash flows should report the cash
effects during the reported period of an entity’s operations, its noncapital financing
transactions, its capital and related financing transactions, and its investing transactions.
Related information should report the investing, capital, and financing transactions that
affect an entity’s financial position but do not directly affect cash flows during the period.
A reconciliation of operating income (or net income if operating income is not separately
identified on the operating statement) to net cash flow from operating activities also
should be provided. This reconciliation generally will provide information about the net
effects of operating transactions and other events that affect operating income and
operating cash flows in different periods.
Focus on Cash and Cash Equivalents
8. A statement of cash flows should explain the change during the period in cash 5
and
cash equivalents regardless of whether there are restrictions on their use. The statement
should use a descriptive term such as cash or cash and cash equivalents rather than the
term funds, which has several different meanings in governmental accounting. The total
amounts of cash and cash equivalents at the beginning and end of the period shown in the
statement of cash flows should be easily traceable to similarly titled line items or subtotals
shown in the statements of financial position as of those dates.
9. For purposes of this Statement, cash equivalents are defined as short-term, highly
liquid investments that are both
5
Consistent with common usage, cash includes not only currency on hand, but also demand deposits with
banks or other financial institutions. Cash also includes deposits in other kinds of accounts or cash
management pools that have the general characteristics of demand deposit accounts in that the governmental
enterprise may deposit additional cash at any time and also effectively may withdraw cash at any time
without prior notice or penalty.
5
a. Readily convertible to known amounts of cash.
b. So near their maturity that they present insignificant risk of changes in value because
of changes in interest rates.
Generally, only investments with original maturities 6
of three months or less meet this
definition.
10. Examples of items commonly considered to be cash equivalents are Treasury bills,
commercial paper, certificates of deposit, money market funds, and cash management
pools. Cash purchases and sales of those types of investments generally are part of the
entity’s cash management activities rather than part of its operating, capital, investing, and
financing activities, and details of those transactions should not be reported in a statement
of cash flows.
11. Not all investments that qualify are required to be treated as cash equivalents. An
entity should establish a policy concerning which short-term, highly liquid investments
(that satisfy the definition of cash equivalents in paragraph 9) it will treat as cash
equivalents. An entity should disclose its policy for determining which of those items are
treated as cash equivalents. Any change in that policy is a change in accounting principle
that should be reported by restating financial statements for earlier years presented for
comparative purposes.
Gross and Net Cash Flows
12. Generally, information about the gross amounts of cash receipts and cash payments
during a period is more relevant than information about the net amount of cash receipts
and payments. However, the net amount of related receipts and payments provides
sufficient information not only for cash equivalents, as noted in paragraph 10, but also for
certain other classes of cash flows specified in paragraphs 13, 14, and 32.
6
Original maturity means the original maturity to the entity holding the investment. For example, both a
three-month U.S. Treasury bill and a three-year Treasury note purchased three months from maturity qualify
as cash equivalents. However, a Treasury note purchased three years ago does not become a cash equivalent
when its remaining term is three months.
6
13. Items that qualify for net reporting because their turnover is quick, their amounts are
large, and their maturities are short are cash receipts and payments pertaining to (a)
investments (other than cash equivalents), (b) loans receivable, and (c) debt, provided that
the original maturity of the asset or liability is three months or less. 7
14. In addition, in certain circumstances governmental enterprises may report net the
purchases and sales of their highly liquid investments rather than report the gross
amounts. Net reporting is allowed if (a) during the period, substantially all of the
governmental enterprise’s assets were highly liquid investments (for example, marketable
securities and other assets for which a market is readily available) and (b) the
governmental enterprise had little or no debt, based on average debt outstanding during
the period, in relation to average total assets.
Classification of Cash Receipts and Cash Payments
15. A statement of cash flows should classify cash receipts and cash payments as
resulting from operating, noncapital financing, capital and related financing, or investing
activities.
Cash Flows from Operating Activities
16. Operating activities generally result from providing services and producing and
delivering goods, and include all transactions and other events that are not defined as
capital and related financing, noncapital financing, or investing activities. Cash flows
from operating activities generally are the cash effects of transactions and other events
that enter into the determination of operating income. 8
7
For this purpose, amounts due on demand are considered to have maturities of three months or less.
Examples of items that could be reported ―net‖ based on the criteria in paragraph 13 are most repurchase
agreements (assuming the entity chooses not to include them as cash equivalents) and loans to and from
other funds to cover temporary (three months or less) cash needs. 8
Although operating income is not defined in authoritative governmental accounting literature, the term has
become widely used. A nonauthoritative illustration of the calculation of operating income (operating
revenues less operating expenses) is provided in Cod. Sec. 2200.606.
7
17. Cash inflows from operating activities include
a. Cash inflows from sales of goods or services, including receipts from collection of
accounts receivable and both short- and long-term notes receivable from customers
arising from those sales.
b. Cash receipts from quasi-external operating transactions with other funds.
c. Cash receipts from grants for specific activities that are considered to be operating
activities of the grantor government. (A grant arrangement of this type is essentially
the same as a contract for services.)
d. Cash receipts from other funds for reimbursement of operating transactions.
e. All other cash receipts that do not result from transactions defined as capital and
related financing, noncapital financing, or investing activities.
18. Cash outflows for operating activities include
a. Cash payments to acquire materials for providing services and manufacturing goods
for resale, including principal payments on accounts payable and both short- and
long-term notes payable to suppliers for those materials or goods.
b. Cash payments to other suppliers for other goods or services.
c. Cash payments to employees for services.
d. Cash payments for grants to other governments or organizations for specific activities
that are considered to be operating activities of the grantor government.
e. Cash payments for taxes, duties, fines, and other fees or penalties.
f. Cash payments for quasi-external operating transactions with other funds, including
payments in lieu of taxes.
g. All other cash payments that do not result from transactions defined as capital and
related financing, noncapital financing, or investing activities.
19. Cash flows from operating activities also include transactions of certain loan
programs. Even though loan activities are usually classified as investing activities, certain
loan programs are not intended to be investments, but are undertaken instead to fulfill a
governmental responsibility. These ―program loans‖ are made and collected as part of a
governmental program, for example, low-income housing mortgages or student loans. For
cash flow reporting purposes, these loan activities are the operating activities of the
governmental enterprise; therefore, the related cash flows should be classified as operating
activities. All loans made and collected (including interest) should be considered
operating cash outflows and inflows, respectively. Any proceeds from bonds issued to
finance the loan program and subsequent debt service payments (principal and interest)
should be classified as noncapital financing activities.
8
Cash Flows from Noncapital Financing Activities
20. Noncapital financing activities include borrowing money for purposes other than to
acquire, construct, or improve capital assets and repaying those amounts borrowed,
including interest. This category includes proceeds from all borrowings (such as revenue
anticipation notes) not clearly attributable to acquisition, construction, or improvement of
capital assets, regardless of the form of the borrowing. Also included are certain other
interfund and intergovernmental receipts and payments.
21. Cash inflows from noncapital financing activities include
a. Proceeds from issuing bonds, notes, and other short- or long-term borrowing not
clearly attributable to acquisition, construction, or improvement of capital assets.
b. Cash receipts from grants or subsidies 9
except (1) those specifically restricted for
capital purposes (paragraph 24b) and (2) those for specific activities that are
considered to be ope
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