Expertise Beyond the Numbers

FASB Update for Restricted Cash on Statement of Cash Flows

Now that the implementation dates are upon us for FASB’s Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, SC&H Group wanted to clarify the implementation specifics.

For public entities, it is effective for fiscal years beginning after December 15, 2017. For all other entities, it is effective for fiscal years beginning after December 15, 2018. There was previously little guidance on restricted cash presentation on the statement of cash flows, and therefore, there were divergences in the presentation.

The following are the key points to ensure you are presenting restricted cash appropriately under the updated standard:

  1. The statement of cash flows should include restricted cash and restricted cash equivalents in the beginning and ending total balances. If the statement of position includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents, then a reconciliation between the statement of financial position and the statement of cash flows is needed. The reconciliation is needed for all periods presented, and can be presented either on the statement of cash flows or in the notes, either in narrative or tabular format.
  2. Transfers between cash, cash equivalents, restricted cash, and restricted cash equivalents are not to be reported on the statement of cash flows. The Accounting Standards Codification 230, Statement of Cash Flows still considers purchases and sales of cash equivalents (i.e. transfers between cash and cash equivalents) to be a cash management strategy rather than a part of operating, investing, or financing activities, and thus this activity will remain undisclosed on the statement of cash flows.  The update has added that “transfers between cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents are not part of the entity’s operating, investing, and financing activities, and details of those transfers are not reported as cash flow activities in the statement of cash flows.”
  3. Entities should disclose the nature and amount of restrictions on its cash and cash equivalents (unless it is deemed immaterial).

If you have any questions as you begin to prepare for the implementation of this update, Contact Us to make sure your financial statement presentation follows the new accounting standards.