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Statement of Cash Flows

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Statement of Cash Flows

  1. 1. THE CALIFORNIA STATE UNIVERSITY GAAP REPORTING MANUAL CHAPTER 6– STATEMENT OF CASH FLOWS INTRODUCTION GASB Statement 34 requires the presentation of a statement of cash flows based on the provisions of GASB Statement 9. It further requires the use of the direct method of presenting cash flows. GASB Statement 35 paragraph 57 requires public colleges and universities to use the direct method for the statement of cash flows. The statement of cash flows is comprised of six sections under GASB Statement 9:  Operating activities  Non-capital financing activities  Capital and related financing activities  Investing activities  Reconciliation of net operating revenues (expenses) to net cash provided (used) by operating activities  Supplemental schedule of noncash transactions OPERATING ACTIVITIES Operating activities generally result from providing services and producing and delivering goods, and include all transactions and other events that are not defined as capital and related financing, non-capital financing and investing activities. Cash flows from operating activities generally are the cash effects of transactions and other events that enter into the determination of operating income (GASB Statement 9, paragraph 16). Common operating activities for the CSU include: tuition and fees, federal grants and contracts, state grants and contracts, payments to suppliers, payments to employees, payments to students, sales and services of auxiliary enterprises, sales and services of educational activities, and any other activities that do not meet the definition of capital and related financing, non-capital financing and investing activities. NON-CAPITAL FINANCING ACTIVITIES Non-capital financing activities include borrowing money for purposes other than to acquire, construct, or improve capital assets and repaying those amounts borrowed, including interest. This category includes proceeds from all borrowings not clearly attributable to acquisition, construction or improvement of capital assets, regardless of the form of borrowing. Also included are certain other interfund and intergovernmental receipts and payments (GASB Statement 9, paragraph 20). Common non-capital financing activities for the Last revised April 20, 2005 6-1
  2. 2. The California State University GAAP Reporting Manual Effective June 2005 CSU include state appropriations, gifts and grants for other than capital purposes, receipt and disbursement of direct loan, Perkins and nursing loan program funds and other agency transactions. CAPITAL AND RELATED FINANCING ACTIVITIES Capital and related financing activities include (a) the acquiring and disposing of capital assets used in providing services or producing goods, (b) borrowing money for acquiring, constructing, or improving capital assets and repaying the amounts borrowed, including interest, and (c) paying for capital assets purchased from vendors on credit (GASB Statement 9, paragraph 23). Common capital and financing activities for the CSU include proceeds from capital debt and capital leases, capital state appropriations, capital grants and gifts (excluding the portion that relates to noncash transactions, i.e. contributed assets), proceeds from the sale of capital assets, acquisition of capital assets (excluding the portion that relates to noncash transactions, i.e. acquisition of capital asset through capital lease), and principal and interest paid on capital debt and leases. INVESTING ACTIVITIES Investing activities include making and collecting loans (except program loans) and acquiring and disposing of debt and equity instruments (GASB Statement 9, paragraph 26). Common investing activities for the CSU include proceeds from the sale and maturities of investments, investment income received, and purchases of investments. RECONCILIATION OF NET OPERATING REVENUES (EXPENSES) TO NET CASH PROVIDED BY (USED IN) BY OPERATING ACTIVITIES This section begins with operating income (loss) and adds back in all noncash expenses included in the determination of operating income loss (such as depreciation). It then adds in or subtracts out the changes in assets and liabilities on the statement of net assets pertaining to operating activities from the current year to the prior year. The total of this section must equal the total of the operating activities section above. Last revised April 20, 2005 6-2
  3. 3. The California State University GAAP Reporting Manual Effective June 2005 SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS GASB Statement 9 states that a disclosure is required for all investing, capital and financing activities during the year that “affect recognized assets or liabilities but do not result in cash receipts or cash payments in the period”. Examples of noncash transactions include:  Capital contributions/donated capital assets (including transfers of assets between the University and auxiliary organizations)  Assets acquired by capital leasing  Acquisition of capital asset through long-term debt obligation (other than capital lease)  Construction work in progress passed down from the Chancellor’s Office  Accrued capital asset costs (purchased but unpaid at year-end)  Gifts in kind CASH FLOW STATEMENTS FOR AUXILIARY ORGANIZATIONS With the CSU’s implementation of GASB Statement 39 effective July 1, 2003, the Auxiliary Organization’s statement of cash flows is no longer required to be included in the campus’ financial statements. Last revised April 20, 2005 6-3
  4. 4. The California State University GAAP Reporting Manual Effective June 2005 STEPS TO PREPARING A DIRECT STATEMENT OF CASH FLOWS CONVERTING REVENUES AND EXPENSES FROM ACCRUAL BASIS TO CASH BASIS The general rule is if an asset increased from the prior to current year it is cash “used” and should be subtracted from the revenue. Vice versa, if the asset decreased, then it is cash “provided” and should be added to revenue. For liabilities, if the balances increased from prior year to the current year, it is cash “provided” and should be added to revenue. If the liability balance decreased from the prior year it is cash “used” and should be subtracted from revenue. STEP 1 – COMPLETE YOUR STATEMENT OF NET ASSETS AND STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS. COMPARATIVE BALANCES WITH VARIANCE ANALYSIS WILL BE NEEDED FOR YOUR STATEMENT OF NET ASSETS. STEP 2 – COMPLETE THE FOOTNOTES TO YOUR FINANCIAL STATEMENTS Several footnotes will be needed as you prepare your statement of cash flows. Such footnotes include the rollforward of capital assets, rollforward of long-term debt obligations and the breakout of operating expenses by natural classification. STEP 3 – DETERMINE CASH COLLECTED FROM TUITION AND FEES This amount is the amount net of scholarship allowances reported on an accrual basis on the statement of revenues, expenses, and changes in net assets plus the change in accounts receivable for tuition and fees from the prior year to the current year plus the change in deferred revenue related to tuition and fees from the prior year to the current year. Use of a cash flow worksheet and an additional cash flow data worksheet as shown in this chapter are necessary in capturing this data. STEP 4 – DETERMINE CASH COLLECTED FROM FEDERAL, STATE AND LOCAL AND NON-GOVERNMENTAL GRANTS AND CONTRACTS These are the amounts reported on an accrual basis on the statement of revenues, expenses and changes in net assets plus the corresponding changes in accounts receivable for federal, state and local and non-governmental grants and contracts. STEP 5 – DETERMINE CASH PAID TO SUPPLIERS This amount is comprised of the following:  Payments to vendors and suppliers on an accrual basis (obtain services and supplies expense amount from the natural classification footnote in the financial statements)  Change in other liabilities - current and non-current from the prior year to current year (amounts related to operations only)  Change in accounts payable from the prior year to current year (amounts related to operations only) Last revised April 20, 2005 6-4
  5. 5. The California State University GAAP Reporting Manual Effective June 2005  Change in prepaid expenses and other assets from the prior year to current year (amounts related to operations only)  Change in self-insurance liability – current and noncurrent from the prior year to current year. STEP 6 – DETERMINE CASH PAID TO EMPLOYEES This amount is comprised of the following:  Payments to employees on an accrual basis (obtain salaries and benefits expense amounts from the natural classification footnote in the financial statements)  Change in accrued salaries and benefits from the prior year to current year  Change in compensated absences – current and noncurrent from the prior year to current year. STEP 7 – DETERMINE CASH PAID TO STUDENTS This amount is determined by taking new institutional loans to students and the scholarship payments to students (obtain scholarship expense amount from the natural classification footnote in the financial statements). STEP 8 – DETERMINE CASH COLLECTED ON STUDENT LOANS This amount is the collections made from institutional student loan funds. STEP 9 – DETERMINE CASH COLLECTED RELATED TO THE SALES AND SERVICES OF AUXILIARY ENTERPRISES This amount is determined by taking sales and services of auxiliary enterprises, net of scholarship allowances, reported on an accrual basis from the statement of revenues, expenses and changes in net assets plus the change in accounts receivable for auxiliary enterprises from the prior year to the current year plus the change in deferred revenue for residence halls from the prior year to the current year. STEP 10 – DETERMINE CASH COLLECTED RELATED TO THE SALES AND SERVICES OF EDUCATIONAL ACTIVITIES This amount typically represents sales and services of educational activities from the statement of revenues, expenses, and changes in net assets, unless there are related accounts receivable or deferred revenue recorded on the statement of net assets. If so, change in accounts receivable for sales and services of educational activities from the prior year to the current year plus the change in deferred revenue from the prior year to the current year also need to be included. STEP 11–- DETERMINE OTHER RECEIPTS (PAYMENTS) This amount is calculated by taking other operating revenues from the statement of revenues, expenses, and changes in net assets and combining it with the change in accounts receivable – other from the prior year to the current year. Accounts receivable from the Chancellor’s Office (CO) should be included on this line item for reporting package purposes only. For stand-alone purposes, accounts receivable from CO must be reclassified to investments (refer to Chapter 12). Accordingly, a corresponding adjustment is also necessary to reclassify this activity from other receipts (payments) in the operating section to purchases and sales of investments in the investing activities section. Last revised April 20, 2005 6-5
  6. 6. The California State University GAAP Reporting Manual Effective June 2005 STEP 12 – SUM ACTIVITIES FROM STEPS 3 THROUGH 11 TO GET TOTAL NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES STEP 13 – SKIP DOWN TO THE RECONCILATION OF NET OPERATING REVENUE (EXPENSES) TO NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES SECTION Complete this section by doing the following:  Take operating income (loss) from the statement of revenues, expenses and changes in net assets  Add back in depreciation and amortization expense for the current year from the statement of revenues, expenses and changes in net assets  Compute the change from the prior year to the current year for the statement of net assets accounts listed in the next bullet. Record each amount computed as an adjustment to operating income (loss) in the reconciliation. The general rule is if an asset increased from prior to current year, it is cash “used” and is subtracted from the total. Vice versa, if the asset decreased, then it is cash “provided” and is added to the total. For liabilities, if the balances increased from prior to current year, it is cash “provided” and is added to the total and if the balance decreased from prior year it is cash “used” and is subtracted. You must consider the impact of noncash transactions to each line item, as these should be excluded from the changes in the asset and liabilities.  The following changes in assets and liabilities (related to operating activities only) should be analyzed for this section: accounts receivable, net, institutional student loans receivable, net; pledges receivable, net; prepaid expenses and other assets; accounts payable, accrued salaries and benefits payable, accrued compensated absences, deferred revenue, self insurance liability, depository accounts and other liabilities. The increase or decrease in the assets and liabilities must be gross of noncash transactions.  The total of the above items in Step 13 must equal net cash provided by (used in) operating activities as determined in Step 12. If these amounts do not equal go back through Steps 3 - 11 to determine if amounts have been missed or if signs are going the wrong direction in the reconciliation (Step 13). STEP 14 – DETERMINE CASH RECEIVED FROM STATE APPROPRIATIONS - NON-CAPITAL This amount is calculated by taking the state appropriations amount under non-operating revenue (expense) in the statement of revenues, expenses and changes in net assets and combining it with the change in accounts receivable for state appropriations (general fund only) from the prior year to the current year. Any accounts receivable for state appropriation related to capital projects should not be included in this line item. Last revised April 20, 2005 6-6
  7. 7. The California State University GAAP Reporting Manual Effective June 2005 STEP 15 – DETERMINE CASH RECEIVED FROM GIFTS AND GRANTS FOR OTHER THAN CAPITAL PURPOSES This amount is calculated by taking the amount recorded as gifts, non-capital under non-operating revenue (expense) on the statement of revenue, expenses and changes in net assets and combining it with any change in pledges receivable from the prior year to the current year for contributions given for non-capital purposes. Additionally, an adjustment should be made here to remove any in-kind gifts that have been included in revenue as these are noncash transactions. Typically, these in-kind gifts would represent those gifts not capitalized, i.e. under $5,000 capitalization threshold. STEP 16 – DETERMINE AMOUNTS RECEIVED AND DISBURSED FOR FEDERAL LOAN PROGRAM TRANSACTIONS For the majority of campuses, the most significant Federal Loan Program transaction is related to receipts and disbursements of the William Ford Direct Loan, Perkins, and Nursing Loan funds. In the case of these programs, the campus is merely acting as an agent by receiving the funds from the federal government and then disbursing them to students as determined through the eligibility requirements. Since these monies are not recorded as revenues of the campus, the CSU classifies these transactions as grants refundable liability. The receipt and disbursement of these funds should be shown separately in the non-capital financing section of the statement of cash flows. Information for disbursements should be available off the student financial aid system and should agree to what is being reported on the schedule of expenditures of federal awards for the single audit. The net of the receipts and disbursements of these transactions should represent the change in the grants refundable liability and/or depository liability from the prior year. For the Perkins and Nursing loan programs, the campus also records a student loans receivable. The net of the disbursement of these funds (loans issued) and receipt of funds (collections on student loans) represents the net change in the portion of the student loans receivable for those programs. STEP 17 – DETERMINE AMOUNTS RECEIVED AND DISBURSED FOR OTHER AGENCY TRANSACTIONS Per GASB Statement 9 ¶20, noncapital financing activities include “certain other interfund and intergovernmental receipts and payments”. Per the GASB 35 Implementation Guide published by NACUBO, examples of these include agency transactions, (including funds received/disbursed from direct lending programs, return of funds held for others, and resources held as an agent). Agency transactions should be analyzed using the same approach as the Federal Loan Program transactions in Step 16. These monies are not recorded as revenue of the campus nor are expenses recorded. The nature of agency transactions may differ between campuses, depending on business practices. An example of an agency transaction would be student board fees collected by the campus on behalf of an auxiliary organization responsible for providing food service to residence halls. Agency transactions are recorded by the campus as a liability and the receipts and disbursements must be analyzed and reported separately on the statement of cash flows. These transactions should be reported on the statement of cash flows as monies received on behalf of others or as monies disbursed on behalf of others. As a check figure, the net of these transactions should represent the change in the liability (depository accounts) recorded on the statement of net assets. Last revised April 20, 2005 6-7
  8. 8. The California State University GAAP Reporting Manual Effective June 2005 STEP 18 – DETERMINE OTHER RECEIPTS AND PAYMENTS This line item on the statement of cash flows may include other nonoperating revenues (expenses) obtained off of the statement of revenues, expenses and changes in net assets. An analysis must be done to determine if placing that revenue or expense item in this category is appropriate. The CSU has elected to include “gain/loss from disposal of assets” within the other nonoperating revenues (expenses) line on the statement of revenues, expenses and changes in net assets. However, gain/loss on disposal of assets represents a noncash transaction and must be adjusted out to arrive at other receipts (payments) on the statement of cash flows. Additional adjustments may be necessary if balance sheet fluctuations pertain to other nonoperating revenue (expense). STEP 19 – SUM ITEMS IN STEPS 14 THROUGH 18 TO GET THE TOTAL OF NET CASH PROVIDED BY (USED IN) NON-CAPITAL FINANCING ACTIVITIES STEP 20 – DETERMINE PROCEEDS FROM CAPITAL DEBT AND CAPITAL LEASES This amount is determined by initially taking the net increases to the long-term debt obligations or capitalized lease obligations liability on the statement of net assets. In addition, the gross increase is reported as “additions” in the long-term liabilities activity note to the financial statements. This line item should include the gross increases in the current and non-current portions of long-term debt. Capital debt acquired where cash proceeds are not received directly by University should be excluded from this line and disclosed separately in the supplementary schedule of noncash transactions on the statement of cash flows. Note that any capital assets acquired from the aforementioned excluded debt are also considered noncash acquisitions and are accordingly omitted in Step 23. STEP 21 –DETERMINE CASH RECEIVED FROM STATE APPROPRIATIONS FOR CAPITAL PURPOSES Similar to Step 14 above, this amount includes state appropriations, capital recorded after nonoperating revenues (expenses) on the statement of revenues, expenses and changes in net assets combined with any changes in accounts receivable from the prior year to the current year from capital state appropriations. STEP 22 – DETERMINE THE PROCEEDS FROM THE SALE OF CAPITAL ASSETS Proceeds from the sale of capital assets can be determined by analyzing capital assets disposals for the year. This does not represent the actual gain/loss from disposal of assets, which is a noncash item adjusted in Step 18. STEP 23 –- DETERMINE THE CASH USED IN THE ACQUISITION OF CAPITAL ASSETS This amount should equal the gross “additions” shown in the capital assets activity note to the financial statements. Taking into account any necessary adjustments to this line (i.e. change in accounts payable from prior year to current year and noncash acquisitions, including those obtained via capital debt where the proceeds are not directly received by the University, and in- kind gifts) the resulting line item amount presented on the statement of cash flows should reconcile to the amount shown in the capital assets activity (rollforward schedule) note to the financial statements. STEP 24–- DETERMINE PRINCIPAL AND INTEREST PAID ON CAPITAL DEBT AND LEASES Last revised April 20, 2005 6-8
  9. 9. The California State University GAAP Reporting Manual Effective June 2005 These two line items on the statement of cash flows are shown separately and can be calculated by summing the following:  For cash paid for principal, the amount should be the amount reported as “retirements” in the long-term debt liabilities activity and capital lease obligations notes to the financial statements.  For cash paid for interest on debt and capital leases, the amount should be the sum of interest expense on capital related debt on the statement of revenues, expenses and changes in net assets plus the change in interest payable from the prior year to the current year. STEP 25–- SUM ITEMS IN STEPS 20 THROUGH 24 TO GET THE TOTAL OF NET CASH PROVIDED BY(USED IN) CAPITAL AND RELATED FINANCING ACTIVITIES. STEP 26–- DETERMINE THE PROCEEDS FROM THE SALES AND MATURITIES OF INVESTMENTS. This information will not be available from the statement of net assets or revenues, expenses and changes in net assets. This information must be derived and accumulated from monthly or year-end bank statements and other sources. Proceeds from the sales/maturities of investments may consist of multiple sources for the campus such as MetWest, Local Agency Investment Fund (LAIF), or Surplus Money Investment Fund (SMIF) investments. Proceeds from the sales of investments should represent only the funds withdrawn from the investment accounts, which reduce the investment portfolio. For many campuses, a money market account may be used to wire funds to/from Met West. Depending on the campus’ business practices, a schedule of deposits and withdrawals in this account may provide the information needed. A different approach is required to obtain information on the SMIF investments. For certain CSU funds, a GAAP adjustment to the fund balance clearing account is required (see section 4-6 of the GAAP manual) to reclassify the balance as an investment. In these funds, the activity in the fund balance clearing account should be analyzed. Typically, reductions (credits) to fund balance clearing represent claim schedules and payroll paid by the State Controller. These transactions are treated as “proceeds from the sales of investments” since the investment balance Last revised April 20, 2005 6-9
  10. 10. The California State University GAAP Reporting Manual Effective June 2005 is reduced as disbursements are made. Care should be taken to exclude transfers between SMIF invested funds. For example, the Dorm Revenue fund may “transfer” monies to the Dorm Maintenance and Repair fund, a transaction that does not reduce the overall investment at SMIF. STEP 27 –- DETERMINE CASH RECEIVED OR USED TO GENERATE INVESTMENT INCOME This amount should consist of all investment income received, both re-invested and not re- invested. Typically, Met West and SMIF investment earnings are re-invested. An analysis of investment earnings should be reconciled to net investment income recorded on the statement of revenues, expenses, and changes in net assets (SRECNA). If any of the re-invested investment earnings are agency transactions, an adjustment may be required in Step 16 or 17 (above). Additionally, the change in unrealized gain (loss) on investments that is recorded as a component of net investment income on the SRECNA should be excluded from the statement of cash flows. STEP 28 –- DETERMINE CASH USED TO PURCHASE INVESTMENTS This amount is determined from monthly or year-end summary investment statements and the analysis prepared in step 26 (above). Purchases of investments cannot be netted with sales and maturities of investments for the statement of cash flows. Care should be taken to exclude transfers between SMIF invested funds. For example, the Dorm Revenue fund may “transfer” monies to the Dorm Maintenance and Repair fund, a transaction that does not increase the overall investment at SMIF. Only new monies to the pooled investment portfolio would be reported as “purchases of investments” on the statement of cash flows. In the CSU Funds whereby investments are recorded by a GAAP adjustment which reclassifies amounts from fund balance clearing, the activity in fund balance clearing should be analyzed to determine the source of the increases to fund balance clearing. Typically, these increases (debits) represent funds remitted to the State Controller and should be treated as “purchases of investments” because the investment balance is increased. Note that re-invested interest earnings are shown as increase to fund balance clearing and should be reflected as a purchase of investments on the statement of cash flows. STEP 29 –- SUM ITEMS IN STEPS 26 THROUGH 28 TO GET THE TOTAL FOR NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES STEP 30–- TOTAL ITEMS IN STEPS 12, 19, 25 AND 29 IN ORDER TO GET THE NET INCREASE OR DECREASE IN CASH AND CASH EQUIVALENTS STEP 31–- ADD THE NET INCREASE OR DECREASE IN CASH AS CALCULATED BY STEP 30 WITH BEGINNING CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS AS RECORDED ON YOUR PRIOR YEAR FINANCIAL STATEMENTS. THE TOTALS WILL EQUATE TO ENDING CASH AND CASH EQUIVALENTS. STEP 32 –- ENDING CASH AND CASH EQUIVALENTS ON THE STATEMENT OF CASH FLOWS MUST EQUAL THE SUM OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS FOR THE CURRENT YEAR AS REPORTED ON YOUR STATEMENT OF NET ASSETS. Last revised April 20, 2005 6-10
  11. 11. The California State University GAAP Reporting Manual Effective June 2005 STEP 33–- IF AMOUNTS DO NOT BALANCE TO THE SUM OF CASH AND CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS GO BACK TO YOUR WORKSHEET AND DOUBLE CHECK LINE ITEMS RELATED TO CAPITAL ASSETS AND INVESTMENTS WHICH ARE USUALLY PROBLEM AREAS. STEP 34 –- SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS Noncash transactions may include, but are not limited to the following:  Capital contributions/donated capital assets (including transfers of assets between the University and auxiliary organizations)  Assets acquired by capital leasing  Acquisition of capital asset through long-term debt obligation (other than capital lease)  Construction work in progress passed down from the Chancellor’s Office  Accrued capital asset costs (purchased but unpaid at year-end)  Gifts in kind Last revised April 20, 2005 6-11

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