Newsletter

NFP - External Financial Reporting - Part Four

Spring 2015

by Elise Zuleger, CPA

In the fourth of this five part series, we will focus on the statement of cash flows and its components.

Statement of Cash Flows
The third statement that must be reported (the first two being the statement of financial position and the statement of activities), if the not-for-profit organization has an external reporting requirement is the statement of cash flows.

The purpose of the statement of cash flows is to show the change in cash during the period.  There are five basic elements to the statement of cash flows:
• Cash flows from operating activities
• Cash flows from investing activities
• Cash flows from financing activities
• Net change in cash during the period
• Supplemental disclosure of noncash investing and financing activities

All cash receipts and payments should be classified as operating, investing, or financing.  All noncash transactions should be disclosed separately rather than in the body of the statement. 

Cash Flows from Operating Activities
Cash receipts include: contributions, program income, and interest and dividend income.  Cash payments include: wages, supplies, general & administrative expenses, etc.

Cash Flows from Investing Activities
Cash receipts include: sale of property & equipment, sale of investments, and collections on loans.  Cash payments include: purchase if property & equipment, purchase of investments, and disbursement of loans.

Cash Flows from Financing Activities
Cash receipts include: Proceeds from short-term borrowings and proceeds from long-term borrowings.  Cash payments include:  repayment of short-term borrowing and repayment of long-term borrowings.

Net change in cash during the period
Once the cash flows from each of the above-mentioned sections has been determined, the sum of the three groups is the net change in cash.

Adding the change in cash to the beginning of year cash balance will give you the cash balance at the end of year.  This amount must equal what is stated on the statement of financial position.

Supplemental disclosure of noncash investing and financing activities
Noncash investing and financing transactions include:  Acquiring property & equipment through financing and acquiring property & equipment or investments as a gift from a donor.

Summation
The statement of cash flows may be the most misunderstood statement within the financial statements, but it just as important as the statement of financial position and statement of activities when it comes to analyzing the financial health of the organization.  

If you have any questions regarding the statement of cash flows, please give us a call!