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Cash Flow Statements and Settling Accounts

Please provide substantiated evidence of how to account (Cash Flow Statement wise) a Settling of Accounts between companies. My opinion is that if I have a Vendor that is simultaneous a Customer and I net the position it should reflect on the Cash Flow Statement. As an example we can imagine a situation where the other company is on one hand a Customer and on the other hand an Equipment Vendor therefore affecting the cash flow statement in different ways. If the netting of the position is not considered in the cash flow being this one calculated in the direct method the accuracy of information in the Cash Flow Statement is not the same just due to the payment method. Would like to have your opinion and if possible a validation of that opinion through the IFRS.

Answers

Jeremy Freelove CPA
Title: Supervising Accountant
Company: LACSD
(Supervising Accountant, LACSD) |

I agree with your position. I don't have an IFRS citation, but FASB ASC 95-11 is clear that reporting the items gross is preferred over net.

Nick Sinigaglia
Title: SVP
Company: OnDeck
(SVP, OnDeck) |

You can check out ASC 230-10-45-7 for a reference point. Without knowing all the facts, generally, I would say to present gross. In your example of netting cash inflows from a customer with outflows to purchase equipment, the answer is more obvious to present gross since those cash flows are in different sections of the statement, but even for things in the same section, gross provides more information, particularly if using the direct method. If you net presentation, you are not presenting the true USE of the cash. If you received payment AND made payment, but are netting, that doesn't reflect true cash flow. If you and the other party agreed to net settle, I would argue that the practical expedient of net settling doesn't change the fact that there were truly two transactions. Long way of saying that I prefer gross presentation in most cases.

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