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Statement of Cash Flows

If your accounting system doesn't automatically create a SCF, which method do you use and why? Direct Method Indirect Method In addition, has any banker/investor or regulatory body required one method over the other?

Answers

Topic Expert
Barrett Peterson
Title: Senior Manager, Actg Stnds & Analysis
Company: TTX
(Senior Manager, Actg Stnds & Analysis, TTX) |

We currently use a spreadsheet poplulated with report data from our ERP system [SAP] with cash flow classification data added as needed by the preparer. We use an indirect method. I have never seen an accounting system successfully produce a cash flow statement for an entity of size without drop-down box.intervention options as in Hyperion, some SQL designs, and the like. Transaction type coding can theoretically address the issue but never seems to be robust enough.

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

We use the indirect method where I work. It is much easier for our purposes to take net income and reconcile out everything that is needed to produce our statement of cash flows. Each of our apartment properties have very few different transactions. There are many transactions monthly, but not a lot of items to be itemized.

Currently FASB ASC 230 allows for both methods. So until that changes to only the direct method I am sure we will stick with indirect.

Thankfully, I do not have to use Excel to drop the data so that it will produce a cash flow statement. I am fortunate enough to have played around with a couple of financial statement design tools to get around having to do the manual way each month.

We have not been asked for any particular presentation yet either by bankers, investors, or the life. Thankfully.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

So how long does this process take, and in the final analysis, do you use the report, or just provide to "interested parties"? Do you know if the "interested parties" use the report?

Chris Shumate
Title: Accounting Manager
Company: Dominion Development Group, LLC
LinkedIn Profile
(Accounting Manager, Dominion Development Group, LLC) |

We use the report mostly for ourselves so that we know the cash flow position of the company in case we are asked. The internal people aren't too concerned with the cash flow position enough to have it reported regularly, so it will be asked for periodically. However, each Monday we report the prior week's customer receipts and cash payouts. But they aren't worried about the reconciliation of getting there as reported on a statement of cash flow.

It mainly helps us with the relationship with our bonding agent and potential customers.

Kevin Roones
Title: Senior Accounting Professional
Company: In-between
(Senior Accounting Professional, In-between) |

Every place I have worked has used the indirect method, since this is generally easier to produce. We only produced it quarterly to satisfy public reporting requirements. It was typically quoted from in press releases also.

My last company had several entities that kept their books in currencies other than the U.S. dollar, so the SCF required extra effort to calculate the effect of exchange rate changes on cash. Separate SCFs were needed for each functional currency, which were then translated into USD and consolidated. Depending on the number of different currencies involved and the volume of non-cash transactions I would say it could take as long as a full working day to produce the SCF.

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