Statement of Cash Flows Theory essays

Statement of Cash Flows Theory essays The Federal Accounting Standards Board (FASB) creates generally accepted accounting principles (GAAP) within the United States. The FASB is a non-governmental, not-for-profit organization created to establish financial accounting and reporting standards, for the private-sector. Although the Securities and Exchange Commission (SEC) legally controls this function for public companies, as part of its mandate to administer and uphold federal securities laws provisions, it has relied on the FASB since 1973 to fulfill this role (Walker, 2004). Of the 159 pronouncements made by the FASB, Statement 95 was issued in November 1987 and focuses on Statement of Cash Flows. The term 'cash flow', in general, refers to the movement of money in and out of a business, with cash inflow typically being correlated to sales and other receipts and outflow attributed to cash payments to others such as suppliers or workers, or more simply the receipts and payments that are made by an organization (cited in Alver, 2005). In general, an organization's cash flow statement gives record to incoming and outgoing moneys, during a specific period of time. SFAS 95 establishes the standards for the reporting of cash flows, and sets the requirement that a statement of cash flows is a necessary component of financial statements for all business enterprises in place of a statement of changes in financial position (Summary of Statement, 1987, para. 1). Statement 95 states that cash receipts and payments must be classified according to where they stem from, if their source is operating activities, investing activities and financing activities. It is this classification of cash flows that allows analysis of cash flow data. Net cash flow has very little information alone. It is through classification and individual components that information is found. What can be problematic and is the lack of standard definition of ope...