While preparing the financial statements for Standards Corp., Ash Roe decided that the creation...

Question:

While preparing the financial statements for Standards Corp., Ash Roe decided that the creation of a direct-method cas flow statement in addition to a reconciliation of net income to cash flow was of little additional use to investors. Ash believes the cost of preparing this statement outweighs any benefits the investors would receive. Thus, he prepared only the reconciliation. Which section in the authoritative guidance best deals with the reconciliation of net income and cash flows from operations?

What Is Operating Cash Flow:

A company's Operating Cash Flow is presented at the very top of the Cash flow statement and is used by investors to assess a company's performance. The Operating Cash Flow shows the cash generated by income and changes to the working capital structure.

Answer and Explanation:

The section of authoritative guidance that bets deals with the reconciliation of net income and the operating cash flow is ASC 230.

  • This standard by the FASB details the two ways that companies can prepare the cash flow statement: The Direct and Indirect Method.
    • In this case, because there is a clear reconciliation of net income to operating cash flow, the indirect method is being used.

Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
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