Chapter 1 — Overview
ASC 230 contains guidance on reporting cash flows in an entity’s financial statements. The primary objective for presenting a statement of cash flows under ASC 230 is to provide details on the changes in an entity’s cash and cash equivalents during a period. In accordance with this objective, cash receipts and payments are classified as operating activities, investing activities, or financing activities in the statement of cash flows and noncash investing and financing activities are separately disclosed.
ASC 230-10
10-1 The primary objective of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an entity during a period.
10-2 The information provided in a statement of cash flows, if used with related disclosures and information in the other financial statements, should help investors, creditors, and others (including donors) to do all of the following:
- Assess the entity’s ability to generate positive future net cash flows
- Assess the entity’s ability to meet its obligations, its ability to pay dividends, and its needs for external financing
- Assess the reasons for differences between net income and associated cash receipts and payments
- Assess the effects on an entity’s financial position of both its cash and noncash investing and financing transactions during the period.
ASC 230 provides general guidance on the classification of cash receipts and
payments as operating, investing, or financing
activities. Under ASC 230, cash receipts and
payments that are not defined as financing or
investing should be classified as operating
activities. Although ASC 230 provides some
guidance on identifying cash flows from operating
activities, it points out that such cash flows are
generally the cash effects of transactions or
events that enter into the determination of net
income. Because ASC 230 may not contain clearly
defined principles for evaluating the
classification of all cash payments and receipts
in the statement of cash flows, some diversity in
practice exists with respect to the classification
of certain cash receipts and cash payments.