IP No. 92 Issue Paper
IP 92–8
might decide to further divide cash paid to employees and suppliers (category (d) above) into
payments for costs of inventory and payments for selling, general, and administrative expenses.
28. Enterprises that choose not to provide information about major classes of operating cash
receipts and payments by the direct method as encouraged in paragraph 27 shall determine and
report the same amount for net cash flow from operating activities indirectly by adjusting net
income of a business enterprise or change in net assets of a not-for-profit organization to
reconcile it to net cash flow from operating activities (the indirect or reconciliation method). That
requires adjusting net income of a business enterprise or change in net assets of a not-for-profit
organization to remove (a) the effects of all deferrals of past operating cash receipts and
payments, such as changes during the period in inventory, deferred income, and the like, and all
accruals of expected future operating cash receipts and payments, such as changes during the
period in receivables and payables, and (b) the effects of all items whose cash effects are
investing or financing cash flows, such as depreciation, amortization of goodwill, and gains or
losses on sales of property, plant, and equipment and discontinued operations (which relate to
investing activities), and gains or losses on extinguishment of debt (which is a financing activity).
29. The reconciliation of net income of a business enterprise or change in net assets of a
not-for-profit organization to net cash flow from operating activities described in paragraph 28
shall be provided regardless of whether the direct or indirect method of reporting net cash flow
from operating activities is used. That reconciliation shall separately report all major classes of
reconciling items. For example, major classes of deferrals of past operating cash receipts and
payments and accruals of expected future operating cash receipts and payments, including at a
minimum changes during the period in receivables pertaining to operating activities, in inventory,
and in payables pertaining to operating activities, shall be separately reported. Enterprises are
encouraged to provide further breakdowns of those categories that they consider meaningful. For
example, changes in receivables from customers for an enterprise’s sale of goods or services
might be reported separately from changes in other operating receivables. In addition, if the
indirect method is used, amounts of interest paid (net of amounts capitalized) and income taxes
paid during the period shall be provided in related disclosures.
30. If the direct method of reporting net cash flow from operating activities is used, the
reconciliation of net income of a business enterprise or change in net assets of a not-for-profit
organization to net cash flow from operating activities shall be provided in a separate schedule. If
the indirect method is used, the reconciliation may be either reported within the statement of cash
flows or provided in a separate schedule, with the statement of cash flows reporting only the net
cash flow from operating activities. If the reconciliation is presented in the statement of cash
flows, all adjustments to net income of a business enterprise or change in net assets of a not-for-
profit organization to determine net cash flow from operating activities shall be clearly identified
as reconciling items.
31. Except for items described in paragraphs 12 and 13, both investing cash inflows and
outflows and financing cash inflows and outflows shall be reported separately in a statement of
cash flows-for example, outlays for acquisitions of property, plant, and equipment shall be
reported separately from proceeds from sales of property, plant, and equipment; proceeds of
borrowings shall be reported separately from repayments of debt; and proceeds from issuing
stock shall be reported separately from outlays to reacquire the enterprise’s stock.
Information about Noncash Investing and Financing Activities
32. Information about all investing and financing activities of an enterprise during a period
that affect recognized assets or liabilities but that do not result in cash receipts or cash payments
in the period shall be reported in related disclosures. Those disclosures may be either narrative
or summarized in a schedule, and they shall clearly relate the cash and noncash aspects of
transactions involving similar items. Examples of noncash investing and financing transactions
are converting debt to equity; acquiring assets by assuming directly related liabilities, such as
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