Intermediate Accounting and Reporting for Colleges and Universities

Cash Flow For FASB Institutions

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1 Cash Flow…Goals of This Session

• Explain at a high level the purpose of the statement

• Define the three basic sections of the statement

• Run through a statement so you can see how easy it is to prepare – ya right!

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Statement of Cash Flows

• Must articulate with balance sheet and statement of activities • Have two options for display – Direct – Indirect • Rules governed by ASC 230 Statement of Cash Flows and ASC 958-205 Presentation of Financial Statements

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2 Cash Flow – Direct Method

• Shows cash inflows by major source (tuition, research activities, gifts, etc.)

• Cash outflows by natural object (salaries, payments to vendors, interest expense, etc.)

• Reconciliation of net income to net cash from operations (indirect method) is also required as a separate schedule if direct method is used

• Tough to do, and not required by FASB – so why do it?

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Cash Flow Statement – Indirect Method

• Method used by most FASB institutions • Easy to prepare using the following basic formula…

+ Cash flows from operating activities + Cash flows from investing activities + Cash flow from financing activities = Net increase (decrease) in cash + Cash at beginning of year = Cash at the end of the year

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3 Cash Flow from Operating Activities

This section of the cash flow statement… • Starts with the change in net assets from the statement of activities • Makes adjustments to the change in net assets to convert to the cash basis such as: – Adding back depreciation – Subtracting investment gains or adding back losses – Adding back write-offs on Student notes receivable

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Cash Flow from Operating Activities

• Reclassifies from the changes in net assets items that are more appropriately shown in the investing and financings sections of the statement…such as: – Gifts for endowment – Gifts for capital construction

• Shows changes in certain balance sheet categories and the impact such changes have on cash. For example: – An increase in A/R uses cash – An increase in A/P provides cash

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4 ASU 2012-05 • Classification of the Sale of Donated Securities in the Statement of Cash Flows – Effective for years beginning after 6-15-13 – Requires classification of cash receipts from the sale of financial assets that upon receipt are directed for sale, and which were converted nearly immediately to cash, as Operating Activities (Financing Activities if $ restricted to long term purpose) – Current practice generally classifies as Investing

Cash Flows from Investing Activities

This section of the cash flow statement includes: • Purchases and sales of investments

• Student loan collections and disbursements

• Acquisition and sale of plant assets

By FASB law, above activity must be shown gross

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5 Cash Flows from Financing Activities This section of the cash flow statement includes: • Proceeds from the issuance of notes and bonds

• Payments on notes and bonds

• Other non-operating changes in net assets reported in TRNA and PRNA such as gifts for endowment and capital construction

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Preparing an Indirect Method Cash Flow Statement

1. Start with a two year comparative balance sheet 2. Gather additional information – Gross investment purchases and sales – Gross student loan activity – Changes in notes and bonds payable – Changes in fixed assets 3. Categorize the above into the three cash flow categories…operating, investing, and financing

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6 Helpful Hints • Have a really great spreadsheet with formulas from the balance sheet and income statement • Create an “audit trail” to see where the numbers came from last year • Watch out for rounding to mess up the “cross footing” to statements

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Let’s look at a real statement

• Please refer to USF’s statement of cash flows provided in your materials.

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