An International Meeting of the American Accounting Association 2005 Annual Meeting August 7–10, 2005 San Francisco, California Come to the City by the Bay!

Effective Learning Strategies Forum
Monday, August 8, 2005

Session 20
Preparation of the Statement of Cash Flows

Presenter:
Carlos A. Mello-e-Souza, Seattle University

Description:
The widely taught method of preparing the statement of cash flows under the indirect format—add noncash expenses and increases in current liabilities and subtract noncash revenues and increases in current assets from net income—is simple, but it is inadequate for corporations exposed to foreign currency fluctuations, that buy and sell other businesses, or that offer stock option plans to their employees.

In order to develop an effective preparation method we separate the problem in two: (1st) prepare a statement consistent with corporate valuation theory; and (2nd) adapt the result obtained to GAAP. The result obtained in the first step avoids problems that have been found with cash flow measurement, disclosure, and classification rules under SFAS No. 95.

Participants in this session will learn how to prepare the indirect format statement of cash flows using a revised technique that corrects problems in the traditional approach. The revised technique also has the advantage of not relying on an extensive list of adjustments to net income: only knowledge of standard bookkeeping entries is required.

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