The FASB, as the authority regarding accounting standards, added the disclosure of funding sources and uses to the Generally Accepted Accounting Principles (US GAAP)but the specific regulations regarding the presentation of information in a cash flow statement come from ASC 230.
Statements of cash flows are broken down into three different sections:
- Cash from financing
- Cash from operations
- Cash from investments
These sections are followed by a general statement of the net increase or decrease in cash.
Preparation of the statement can happen in one of two ways, which vary only in how they present the operational section: the direct method, which is encouraged (though not required) by the FASB, and the indirect method. The direct method, also referred to as the income statement method, starts with cash received and then subtracts spent cash via reports of operating receipts and payments. The indirect method, on the other hand, starts with net income, adds the depreciation back in, and then calculates changes via a balance sheet. Both methods eventually yield the same results and net income must in both cases be reconciled to net cash flows from operating activities.
As cash flow is calculated, depreciation values are left out of the statement. Any expected revenues that have not yet been received are also not included. Below is table detailing the basic structure of a cash flow statement template, as defined by ASC 230: