Statement of Cash Flows Essay

715 Words Aug 16th, 2014 3 Pages
Over the years globalization coupled with related regulations continues to put pressure on moving towards a common global accounting framework called International Financial Reporting Standards (IFRS). THE IASB and FASB have been working jointly to establish a global standard that will guide the organization and presentation of information in the financial statements. The boards goal is to improve the usefulness of the financial information to the users of its’ financial statements and to help users in making their decision. The key financial statement that this paper will focus on is the statement of cash flows. One of the key benefits of the statement of cash flows is its’ comparability. This is due to the fact that although there are …show more content…
Under U.S. GAAP entities are also allowed to use either the direct or indirect method, however they are required to provide a schedule reconciling net income for the period with net cash from operating cash flows from operating activities if entities follows the direct method to prepare the financial statement.
Cash is defined by IFRS as cash on hand and demand deposits and cash equivalents as short term, highly liquid, readily convertible to known amounts of cash subject to insignificant risks of changes in value. An investment qualifies as a cash equivalent only when it has a maturity of three months or less from its’ acquisition date. Under U.S. GAAP the definition of cash and cash equivalents is similar to that of IFRS. The difference lies in their cash management styles. Under IFRS bank overdrafts are included as a component of cash and cash equivalents while under U.S. GAAP bank overdrafts are included in liabilities and excluded from cash equivalents. Under U.S. GAAP changes in overdrafts are considered a financing activity while under IFRS bank balances fluctuates from being positive to overdrawn.
Cash flows from investing and financing activities are reported gross by major class of cash receipts and major class of cash payments under IFRS. The following are exceptions and are reported on a net basis: cash receipts…

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