rel="nofollow" href="#ulink_b3bfab8f-23e9-5d20-9aa0-5328fa7d3398">Restricted Cash
Example 6.10: Disclosure in Tabular Format—Restricted Cash Presented in More Than One Line Item on the Balance Sheet
AUTHORITATIVE LITERATURE
Unlike other statements, the statement of cash flows is based on the cash basis of accounting rather than on the accrual basis. Therefore, all bank account debits and credits that are unrestricted demand deposits should be reported in the statement as inflows and outflows of cash. Reporting cash flows involves no estimated allocations and few judgments except regarding classification in the statement.
Cash flows are recognized in the statement of cash flows in the period they occur. However, entities must disclose in the statement noncash investing and financing activities. (FASB Concepts Statement [CON] No. 5)
Subtopic
ASC 230, Statement of Cash Flows, contains one Subtopic:
ASC 230‐10, Overall
Scope and Scope Exceptions
A statement of cash flows is a required part of a complete set of financial statements for business enterprises and not‐for‐profit organizations. The following are not required to present a statement of cash flows:
Defined pension plans that present financial information under Topic 960.
Other employee plans that present information similar to ASC 960. (ASC 962‐205‐45‐9)
A common trust fund, variable annuity account, or similar fund maintained by a bank, insurance entity, or other entity in its capacity as a trustee, administrator, or guardian for the collective investment and reinvestment of moneys.
Investment companies within the scope of ASC 946 if the following conditions are met:Substantially all of the entity's investments are highly liquid,The entity's investments are carried at fair value and classified in accordance with ASC 820 as Level 1 or Level 2 or were measured using the practical expedient to determine fair value and are redeemable in the near term,The entity has little or no debt, based on average debt outstanding during the period, in relation to average total assets, andThe entity provides a statement of changes in net assets.(ASC 230‐10‐15‐4)
PRACTICE ALERT
The SEC offers suggestions for avoiding errors when preparing the statement of cash flow. While these suggestions apply to the statement of cash flows, they are equally valid when preparing other financial statement statements.
Information
How are you collecting the financial data necessary to prepare the statement?
What processes are in place to ensure this information is complete and accurate, especially to the extent new or nonrecurring transactions have occurred?
Are there manual processes that are ad hoc that could be standardized or automated?
People
Do those individuals preparing the statement of cash flows understand the principles in ASC 230?
Are there ways you can provide them with better training to perform their job?
Do those individuals reviewing the statement of cash flows have enough expertise to identify and prevent misstatements in their review process?
Timing
Are there ways to prepare and review the statement of cash flows earlier in the financial statement closing process?(Source: https://www.sec.gov/news/speech/2014-spch120814tkc)
PRESENTATION AND DISCLOSURE REQUIREMENTS
Objective
The primary purpose of the statement of cash flows is to provide information about the entity's operations, investing transactions, and financing activities during the period. (ASC 230‐10‐45‐1) The statement includes inflows and outflows of cash and cash equivalents. The statement must also present a reconciliation of net income and net cash from operating activities. (ASC 230‐10‐45‐2) Operating activities are particularly useful to investors because they show the entity's ability to act as a going concern.
Cash flow per share may not be displayed in the financial statements of a reporting entity. (ASC 230‐10‐45‐3)
Cash and Cash Equivalents
Entities must explain the changes in the total of cash and cash equivalents and amounts described as restricted cash or restricted cash equivalents. Entities must combine restricted cash with unrestricted cash and cash equivalents in the statement of cash flows. If those amounts are presented in more than one line item in the statement of financial position, the entity must disclose:
The line items
Amounts of cash described as restricted cash or restricted cash equivalents
The disaggregated amounts must equal the total shown in the statement of cash flows. This information may be presented on the face of the statement or in the notes in narrative or tabular format. (ASC 230‐10‐45‐4 and 50‐8)
Entities commonly invest excess cash on hand in short‐term, highly liquid investments, and those amounts are substantively the cash the entity owns. Therefore, it makes sense for the statement of cash flows to focus on the aggregate amount of those accounts. Cash purchases and sales of cash equivalents are part of the entity's cash management activities, and those transactions need not be reported in the statement of cash flows. Entities should not present transfers between cash and cash equivalents and restricted cash and restricted cash equivalents. (ASC 230‐10‐45‐5)
Cash equivalents generally include any short‐term, highly liquid investments used as a temporary investment of idle cash. The entity must, however, have a policy as to which investments that meet the definition are treated as cash equivalents and that policy should be disclosed in the notes. (ASC 230‐10‐45‐6 and 50‐1)
Restrictions on Cash and Cash Equivalents
While the ASC does not provide a formal definition of unrestricted cash, it does require entities to disclose information about the nature of the restriction on its cash, cash equivalents, and amounts described as restricted cash or restricted cash equivalents. (ASC 230‐10‐50‐7) Companies generally present restricted cash separately from cash and cash equivalents. However, the line item may not be titled restricted cash.
Gross versus Net Basis
The emphasis in the statement of cash flows is on gross cash receipts and payments, and, with limited exceptions, most investing and financing activities must be presented gross. For instance,
