1.1.2 Accrual Items Used to Represent Cash Flows

Issue

In a number of cases, companies have used accrual items to represent cash flow items. Overloading these elements to represent both the accrual and the cash flow undermines the ability of analysts to accurately calculate a company’s cash flow from operations. For example, filers have taken accrual items typically found in the shareholders’ equity section and used them to represent cash flows in the financing section of the cash flow statement where existing cash flow items are more appropriate. Shareholders’ equity items typically represent the impact on the equity balance and the cash flow items represent the cash impact on the cash balance at the end of the period.

For example, if a company has a dividend payment that appears in the shareholders’ equity statement (DividendsCommonStock with a debit balance), that same element should not be used to represent a cash flow (in the cash flow statement) even if the amount of this element represents the amount actually paid. The tag PaymentsOfDividendsCommonStock should be used as this represents the actual cash outflow. If the DividendsCommonStock item is used in the Cash Flow Statement, it means that accrual basis dividends declared, a debit item, is being used to express a cash basis outflow of dividends actually paid in the cash flow statement. More importantly, the shareholders’ equity amount does not necessarily always represent the actual cash that was paid by the entity in the period.

In the case of the calculation of indirect cash flow items, accrual elements should be used to calculate operating cash flow. These accrual items typically appear in the income statement and shareholders’ equity statement. There is no need to create an extension element to represent these items in the cash flow. In some cases, companies have duplicated items to represent non-cash expense items. In the US GAAP taxonomy, the template cash flow statement includes the common non-cash expense and income items.

Recommendation

In those sections of the cash flow statement that represent direct cash flows such as investing and financing items, these items should generally not be taken from other statements. In the case of the direct cash flows, cash inflows would be debit items and cash outflows would be credit items. For this reason, no items should be taken from the income statement or statement of shareholders’ equity and added into the calculation of direct cash flows as these items will include accrual amounts.

If an element that represents the cash flow is not available in the taxonomy, the company should create an extension, even if an equivalent accrual item seems appropriate.