Statement of Cash Flows: Restricted Cash Changes

Posted on Wednesday, June 15, 2016

The statement of cash flows is required to be presented in financial statements prepared in accordance with generally accepted accounting principles (GAAP).  The statement shows an organization’s cash receipts and payments during the period, categorized by operating, investing and financing activities.  Any noncash transactions affecting the organization’s financial position must be disclosed in the footnotes.

On April 28, 2016, the Financial Accounting Standards Board (FASB) issued an Exposure Draft to solicit public comments on proposed Accounting Standards Update, Statement of Cash Flows (Topic 230): Restricted Cash

The proposed change would require amounts described as restricted cash and cash equivalents to be included with cash and cash equivalents when reconciling the beginning of the period cash with the end of period cash on the statement of cash flows.  Currently, GAAP does not include specific guidance on the cash flow classification and presentation of restricted cash other than limited guidance for nonprofit organizations.  This has caused diversity in how organizations report changes in restricted cash on the statement of cash flows.  Some organizations present restricted cash and cash equivalents in multiple line items on the statement of financial position and they are sometimes titled something other than restricted cash or cash equivalents.  The proposed change would provide guidance to all entities that have restricted cash or cash equivalents. 

Currently the statement of cash flows includes the following subtotal titles. 

If the proposed changes are approved, the subtotals would include “restricted cash” as well. 

In addition, the Exposure Draft includes certain disclosures that should be made to supplement the statement of cash flows. 

1.      An organization should disclose the nature of the restrictions on cash, cash equivalents, and restricted cash or cash equivalents.

2.      A reconciliation of total cash, cash equivalents and restricted cash and cash equivalents at the beginning and end of the period on the statement of cash flows with those amounts reported on the statement of financial position should be disclosed either on the face of the statement of cash flows or in the footnotes if they cannot be easily reconciled with the titles on the statement of financial position.

The effective date and whether early adoption should be allowed will be decided after public comments have been considered.  The comment period ends June 27, 2016.

Posted by: Carrie Minnich, CPA

Posted in Mission Minded Nonprofits

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