The Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) 2016-18 Statement of Cash Flows (Topic 230: Restricted Cash) to provide guidance on how to classify and present restricted cash and restricted cash equivalents on the statement of cash flows. Entities have been classifying transfers between cash and restricted cash as operating, investing, or financing activities, or as a combination of these activities. Diversity also exists in how entities have been presenting direct cash receipts and direct cash payments that affect restricted cash bank accounts. Some entities will disclose this activity as noncash investing activity or noncash financing activity and other entities will present these transactions as cash inflows and outflows.
Key Highlights of the ASU are as follows:
- The statement of cash flows is required to explain the changes during the period of total cash, cash equivalents, restricted cash, and restricted cash equivalents. Restricted cash and cash equivalents should be included with cash and cash equivalents when reconciling the beginning -of-period and end-of-period total amounts.
- The ASU does not provide a definition of restricted cash or restricted cash equivalents or guidance on how to determine restricted amounts.
- Entities will need to include in their notes to the financial statements a discussion on the nature of their restricted cash and restricted cash equivalent balances.
- When cash, cash equivalents, restricted cash, and restricted cash equivalents are presented in more than one line on the statement of financial position, a reconciliation between the statement of financial position and the total cash and cash equivalents included on the statement of cash flows must be disclosed. This reconciliation may be presented in either a narrative or tabular format on the statement of cash flows or in the notes to the financial statements.
The amendments in this ASU are
effective for public business entities for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years. For all other
entities, the amendments are effective for fiscal years beginning after
December 15, 2018, and interim periods within fiscal years beginning after
December 15, 2019. Early adoption is
permitted. Amendments must be applied
retrospectively to all periods presented.
Do you have questions regarding the new ASU? Please contact Betsy Krisher at firstname.lastname@example.org.
Please note this summary of the ASU is not meant to substitute for reading the ASU in its entirety. The complete ASU may be found on the FASB website.