GAAP Indirect Statement of Cash Flows

Tue Oct 29 21:19:55 EDT 2013

Statement of cash flows is not esoteric "featuritis" cluttering up a
program - it's GAAP - invaluable for management, and for investors to
detect financial fraud.

The industry standard of CPAs manually re-typing this data into
spreadsheets embedded into word documents via OLE is not really a great
solution at the small end (which presumably is most GnuCash business
users).  It would indeed be fantastic to have a menu item to run this as a
standard report.

The main problem is having a data model to deal with accrual vs. tax timing
differences.  The chart of accounts structure in GnuCash is very flexible &
dynamic (one of the strong points of the program)... you can't really just
slap down some logic like "accounts that are children of this node and that
node will be aggregated to determine change in payables/receivables or
inventory"... instead you'd probably want to be able to tag each account
(which would show up as another checkbox or dropdown in the "Edit accounts"
window).

Naturally anybody is reluctant to bolt stuff on there without a compelling
case to do so and a clear structure in mind.

David, although I am also a fan of the indirect method (I find it very
useful in financial analysis), if your goal is just GAAP compliance, GAAP
also permits use of the direct method for statements of cash flows.  If you
take that approach, it's easier to shoehorn cash vs. noncash into software
that was not designed to understand the timing differences... e.g. you can
set up a chart of accounts that has income & expenses segregated into cash
& noncash buckets, and have expenses segregated from capital expenditures.
If that fits your use, then you can just generate a standard income
statement and just look at it, or dump to a spreadsheet and delete a few
rows to recalculate.

Perhaps that may be helpful as a workaround in decluttering your own
workflow, depending on your needs.

I'm in the process of evaluating GnuCash for more serious work myself...
it's a nice piece of software, it's just that I think it started as a
personal finance package and still lacks a few features needed for running
businesses bigger than a single-member LLC.  But because the core of
Gnucash was designed well, it should be pretty adaptable to various needs.

cs

P.S. three thumbs up to the devs for the Python API... I think you'll find
a very scant intersection between the sets of "financial professionals" and
"people who code good ANSI C", but Python is a different story.

On Wed, Oct 30, 2013 at 6:12 AM, whwtan <whwtan at hotmail.com> wrote:

> Hi David,
>
> I believe you are asking for a common feature in most paid
> accounting/bookkeeping products out there in the market: A report which
> generates the GAAP/IFS statement of cash flows equivalent within the
> application without external manual work. (In fact, I have yet to find any
> popular paid accounting software which does not have this feature.)
>
> Gnucash does not have that feature.
> However if you understand how the indirect method is done, as Mike as
> explained, you should be able to do it manually from extracting the
> information.
>
> Not being able to produce it with a few clicks within the software almost
> made me avoid using Gnucash initially but you'll find a lot of pleasant
> things about it especially if you deal with multiple currencies. (Integrity
> of my balance sheet far outweighs a feature I really wanted.)
>
> And I have, in my personal opinion, found Gnucash to have one of the most
> amazing mailing list (brilliant helpful people) and written documentation
> (very well documented tutorial/manual) out there.
>
> William
>
>
> On 30/10/2013 4:51 AM, Mike or Penny Novack wrote:
>
>>
>>
>>> My apologies if this has been answered but I can't find anything in the
>>> archives or via Google queries that indicate how to do this. How does one
>>> generate an indirect statement of cash flows from Gnucash?
>>>
>>> In other words, instead of a "money goes into selected accounts" and
>>> "money
>>> goes out of selected accounts" statement, I would like a statement
>>> that's in
>>> line with GAAP.
>>>
>>> Thanks,
>>>
>>> David
>>>
>>>
>>>  What EXACTLY are you asking for, David? Are you asking .........
>> 1) Are there reports that gnucash could produce for me that provided my
>> chart of accounts were properly set up I could take the data from these
>> reports and with that data create the "statement of cash flow" as you have
>> just described? The answer to that is yes.
>> 2) Does gnucash have some  function where I can just press a button and
>> this particular financial report will be produced as the output? The answer
>> to that is no.
>>
>> Look, when I first took up with gnucash I asked the lawyer/accountant
>> type on our board who would help me prepare the annual report "should I
>> write custom code to generate the standard report for this according to
>> GAAP as it applies to non-profits?" (and understand I made my living
>> designing/writing software for financial systems). He said "Don't bother
>> Mike. Any accountant would prefer to just take the data s output by gnucash
>> and using a favorite editor combine that data into the finished product.
>> After all, the full power of an general purpose editor is going to be
>> needed ANYWAY by the time we stick in text describing the accounting
>> principles used, defining what we consider fixed assets, what depreciation
>> process will be used, etc. and then think about all the places will be
>> sticking in annotations and the text of the footnote explaining them.
>>
>> Think of ALL of the possible different financial reports that might be
>> required of any form of entity in any jurisdiction on the planet. We need
>> gnucash to be able to produce the data necessary to be able for us to
>> create whatever (finished product) report we require. Asking for a button
>> that automates down to the almost finished product? (you'd STILL maybe want
>> to edit for fonts and other typographic considerations like page breaks
>> forced to reasonable places ). That's really too much to ask. Think of how
>> MANY buttons need to be designed and coded!
>>
>> Michael D Novack, FLMI
>>
>>
>>
>>  Specifically, I would like to get:
>>>
>>> Net Income
>>> + Depreciation
>>> + Amortization
>>> + Decrease (increase) A/R
>>> + Decrease (increase) Inventory
>>> + Increase (decrease) A/P
>>> Net Cash Flow from Operating Activities (CFO)
>>>
>>> - Capital Expenditures
>>> - Investments
>>> + Other Cash Provided (Consumed by) Investing Activities
>>> Net Cash Flow from Investing Activities (CFI)
>>>
>>> + Increase (decrease) in Long Term Debt
>>> + Increase (decrease) in Short Term Debt
>>> Net Cash Flow from Financing Activities (CFF)
>>>
>>> Net Change in Cash
>>>
>>> Cash, Beginning of Period
>>> Cash, End of Period
>>>
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>>
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