Teaching the Statement of Cash Flows and Free Cash Flow Estimation When Nonarticulation is Present
Advances in Accounting Education: Teaching and Curriculum Innovations
ISBN: 978-1-78441-646-1
Publication date: 3 August 2015
Abstract
Purpose
This instructional tool enhances coverage of statement of cash flows topics in graduate or upper division undergraduate accounting and finance courses.
Methodology/approach
We review one of the complexities of preparing the statement of cash flows. The exercise may include a discussion of the mechanics of preparation of the statement of cash flows using the indirect method. This discussion might include rationales behind operating section adjustments and highlight the pitfalls of using these adjustments without understanding their reasons. Preparation of a statement of cash flows may be followed by introducing the concept of nonarticulation and how it can cause the information presented in the statement to be misleading. To further understanding, the instructor may introduce the reconciliation worksheet provided. Finally, a current public company example, also provided, highlights the magnitude of nonarticulation in practice.
Findings/practical implications
Students learn the complexities related to the preparation of the statement of cash flows. They are introduced to the concept of nonarticulation using an example of public company financial statements. Student feedback suggests appreciation for developing a deeper understanding of the statement of cash flows, learning why they are unable to replicate disclosed operating cash flow from balance sheets of publicly traded companies.
Keywords
Acknowledgements
Acknowledgments
The authors especially thank Franklin J. Plewa for his ideas and examples. We also thank Daniel Rogers, Jason Porter, the participants at the 2010 Western Regional Meeting of the American Accounting Association, and the 2010 Idaho State University Accounting Workshop for their helpful comments on earlier drafts of this paper. Peter Frischmann acknowledges the financial support of the Shirley E. Droschkey Professorship.
Citation
Frischmann, P.J., “Kitty” Pumphrey, L.D. and Santhanakrishnan, M. (2015), "Teaching the Statement of Cash Flows and Free Cash Flow Estimation When Nonarticulation is Present", Advances in Accounting Education: Teaching and Curriculum Innovations (Advances in Accounting Education, Vol. 17), Emerald Group Publishing Limited, Leeds, pp. 145-165. https://doi.org/10.1108/S1085-462220150000017018
Publisher
:Emerald Group Publishing Limited
Copyright © 2015 Emerald Group Publishing Limited