Cash Flow statement for proprietary Funds | Governmental Accounting | CPA Exam FAR

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cash flow statements for proprietary funds have four categories, rather than the three presented under FASB standards. The four categories are:

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Operating Activities: Cash flows from operating activities include receipts from customers, payments to suppliers, payments to employees, and receipt and payment of cash for quasi-external transactions (interfund services provided and used) with other funds.

Noncapital Financing Activities: Cash flows from noncapital financing activities include proceeds and repayment of debt not clearly related to capital outlay, grants received from and paid to other governments for noncapital purposes, transfers to and from other funds, and the payment of interest associated with noncapital debt. Illustration 6-5 makes the assumption that $306,000 of the initial contribution from the General Fund to the internal service fund was for working capital.

Capital and Related Financing Activities: Cash flows from capital and related financing activities include proceeds and repayment of debt related to capital acquisition, the receipt of and payment of grants related to capital acquisition, the payment of interest on debt related to capital acquisition, and the purchase or construction of capital assets.

Investing Activities: Cash flows from investing activities include cash used to acquire investments, whether directly or through investment pools; the interest received on such investments; and cash received from the sale or redemption of investments. Note that cash flows from investing activities do not include acquisition of capital assets, as is the case with FASB requirements.

A reconciliation is required between the Statement of Revenues, Expenses, and Changes and Fund Net Position and the Cash Flow Statement. The reconciliation should be between operating income and cash flows from operating activities. This also is different from FASB format cash flow statements, which reconcile overall net income (or total change in net assets) to cash flows from operations.

Governments are required to disclose noncash investing, capital-related financing, and noncapital-related financing activities. These disclosures generally appear below the reconciliation of operating income and cash flows from operating activities at the bottom of the Statement of Cash Flows. As the heading suggests, these are activities that do not affect cash but change the balance of nonoperating asset and liability accounts. A capital lease is an example of a transaction that affects a nonoperating asset (e.g., equipment) and a long-term liability. Capital leases entered during the year would be disclosed and the amount (present value of minimum lease payments) reported as part of the Statement of Cash Flows. Sometimes developers contribute capital assets, such as water lines, to the local government. Since these do not involve cash, such contributions would also be disclosed as noncash items in a cash flow statement (see bottom of Illustration 2-11 for an example). A similar requirement exists for cash flow statements prepared for commercial businesses and private not-for-profit organizations.