Re: [GNC-dev] [GNC] Miscalculation in cashflow reports

[David Cousens]

Adrien, Geert, Frank

Happened to have my accounting textbook handy this morning.  

The direct and indirect methods differ only in the way they calculate the
cash flows from operating activities. 

The IFRS encourages the use of the direct method but does not exclude the
indirect method. The following are from the Australian 5th edition of
Horngren et al
(http://pearson.com.au/products/M-N-Nobles-Mattison-Matsumura-Best-Frase/M-N-Nobles-Tracie-et-al/Horngren-s-Financial-Accounting/9781486021079?R=9781486021079
 
link is for current edition - diagrams form my copy of 5th edition). which
is from the relevant Australian AASB107 standard which is adopted almost
directly from the IFRS  IAS 7 but does not permit use of the indirect method
in Australia.

The FASB in the US encourages use of the direct method but does not bar use 
of the indirect method (https://www.fasb.org/summary/stsum95.shtml).

These are of course for accrual accounting and assume use of the
conventional structuring of the account tree for a business for Current and
Non-Current Assets and Liabilities.

The outlines of the methods are attached
Horgren_CashFlow_direct.png
 
 
Horgren_CashFlow_indirect.png

  

and a simple sample
Horgren_CashFlow_Sample.png
 
 

There recommended calculations for the Operating Section start from the
Income Statement (bold items should be line items in the Income Statement)

Receipts:
>From Customers = *Sales Revenue* + Decrease in A/R  - Increase in A/R
>From Interest  =*Interest Revenue* + Decrease in interest Receivable
-Increase in Interest Receivable
>From Dividends   =*Dividend Revenue* + Decrease in Dividends Receivable
-Increase in Dividends Receivable

Payments:
For inventory = *COGS* +Increase in Inventory _Decreas in Inventory +
Decrease in A/P - Increase in A/P
Other items = *Operating Expenses* +Increase in PrePaid Expenses - Decrease
in PrePaid Expenses +Decrease in Accrued Liablities - INcrease in Accrued
Liabilities
to Employees =* Salary Expense* + Decrease in Salary/Wages Payable -
Increase in Salary/Wages Payable
For Interest = *Interest Expense* - Decrease in Interest Payable + Increase
in Interest Payable
For Income tax = *IncomeTax Expense* + Decrease in Income tax Payable  -
Increase in Income tax Payable.

The Investing Activities Section is calculated as follows:
Horgren_CashFlow_Investing.png

  

and the Financing calculations
Horgren_CashFlow_Financing.png

  

the toals from each section are then summed to give the nett increase or
decrease in Cash

The cash balance from the Balance Sheet at the start of the period is added
from this and should equal the cash balance from the Balance Sheet at the
end of the period.

There are also calculation methods for operating flows for the indirect
method. The other sections are the same
Horgren_CashFlow_Operating_indirect.png

  

sample presentation for the indirect method is
Horgren_CashFlow_Sample_indirect.png

  

The  report calculation under DRS21 as describe in the reference Frank
provided for Germany does not appear to be conceptually different from the
indirect method but has specific references to line items in the formats of
other reports under DRS21

David Cousens





-
David Cousens
--
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Re: [GNC-dev] [GNC] Miscalculation in cashflow reports

[Adrien Monteleone]

> On Jul 30, 2019, at 10:57 AM, Adrien Monteleone 
>  wrote:
> 
> The basic form is something like this:
> 
> --
> Cash & Cash Equivalents, beginning of period:
> 
> Cash Flow from Operations:
> Cash Flow from Financing:
> Cash Flow from Investing:
> 
> Net Increase in Cash & Cash Equivalents:
> 
> Cash & Cash Equivalents, end of period:
> --

For simplicity, the Beginning & End of Period lines might have to be left off 
and just report the Net Increase (Decrease) line.

This is because the Beginning of Period figure comes from the End Of Prior 
Period Balance Sheet. Since that will vary, and may not have even been run, 
there is no way to know what that would be. The only way around that would be 
to run the Balance Sheet code for a period *from the start of the book* to the 
day before the opening day of the CashFlow report, take that Cash figure, then 
run the rest of the code for the Cash Flow report, then add the Net change to 
that Cash amount to get the End of Period amount. (which is supposed to match 
the End of Period Balance Sheet cash amount as well)

!!

I’m copying -devel on this to move the discussion there.

Regards,
Adrien
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