GAAP Indirect Statement of Cash Flows

David Kang dnk1 at precisionpei.com
Tue Oct 29 22:29:52 EDT 2013


Hi Chris,

 

Thanks for the suggestion RE segregating the chart of accounts into cash &
non-cash; that will help a lot.

 

David

 

From: Christopher Singley [mailto:csingley at gmail.com] 
Sent: Tuesday, October 29, 2013 18:20
To: whwtan
Cc: stepbystepfarm at mtdata.com; David Kang; gnucash-user Mailing List
Subject: Re: GAAP Indirect Statement of Cash Flows

 

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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