FAR, Financial Accounting and Reporting

Sources for Statement of Cash Flows

Last reviewed 2026-10-06

The standards and authorities behind PocketCPA's FAR lessons on Statement of Cash Flows. The topic rests on ASC 230.

About this topic

The income statement is built on accruals, so a profitable company can still run out of cash, and a company reporting a loss can still be flush. The statement of cash flows bridges that gap.

It strips accrual noise out of the picture and shows where cash actually came from and where it went during the period. On the FAR exam it is a perennial favorite because it tests two skills at once: classifying individual transactions into the right activity, and rebuilding operating cash flow from net income.

Key points

The statement of cash flows reconciles the change in cash, cash equivalents, and restricted cash during the period.
Interest paid and income taxes paid are operating under the direct method; dividends paid are financing.
Noncash investing and financing activities (e.g., debt converted to equity) are disclosed separately, never in the body of the statement.
The indirect method starts with net income and adjusts for noncash items and working capital changes to arrive at operating cash.

What the lessons cover

Cash and cash equivalents: the reconciling total (ASC 230-10-45-4)
The three buckets and the classification rules (ASC 230-10-45-10)
Operating activities up close (ASC 230-10-45-16)
Investing and financing activities (ASC 230-10-45-12 and 45-14)
Direct versus indirect method (ASC 230-10-45-25)
A worked indirect-method operating section (ASC 230-10-45-28)
Noncash transactions and required disclosures (ASC 230-10-50-2 and 50-4)

Authoritative references

ASC 230-10-10-1, the objective: relevant information about the cash receipts and cash payments of an entity during a period.
ASC 230-10-45-3, the bar on reporting cash flow per share, or any component of it, under either method.
ASC 230-10-45-4 and 45-5, the reconciling total of cash and cash equivalents, and the treatment of purchases and sales of cash equivalents as cash management rather than investing.
ASC 230-10-45-10 and 45-11, the three buckets and the classification of securities, including the contrast with available-for-sale debt securities.
ASC 230-10-45-12 and 45-13, investing inflows and outflows, including collections on a securitized beneficial interest at 45-12(a).
ASC 230-10-45-14 and 45-15, financing inflows and outflows, including the principal and accreted-interest split for zero-coupon and insignificant-coupon debt at 45-15(b).
ASC 230-10-45-16 and 45-17, operating inflows and outflows, including interest received at 45-16 and interest paid at 45-17.
ASC 230-10-45-18 through 45-20, trading assets: the entities named at 45-18, classification by nature and purpose at 45-19, and operating treatment of other securities and assets at 45-20.
ASC 230-10-45-21B, 45-21C and 45-21D, insurance settlement proceeds by the nature of the loss, corporate-owned life insurance, and distributions from an equity-method investee under a policy election.
ASC 230-10-45-22 and 45-22A, the split of a flow with identifiable parts and the predominance rule added by ASU 2016-15 where the parts cannot be separated.
ASC 230-10-45-24, what the statement reconciles: the net effect of the three flows on cash, cash equivalents, and restricted cash.
ASC 230-10-45-25 and 45-28, the direct and indirect methods, including the reversal of a loss on extinguishment of debt at 45-28.
ASC 230-10-45-29 through 45-32, the reconciliation of net income to operating cash flow, which is required under either method, and where and how it is presented.
ASC 230-10-50-2, 50-2A and 50-4, noncash transactions and required disclosures, including income taxes paid added by ASU 2023-09 and an asset acquired by assuming a directly related liability.
ASC 230-10-50-7 and 50-8, disclosure of the nature of a restriction on cash and the reconciliation of balance sheet line items to the statement total.
ASC 230-10-50-9, the disclosed policy for the section in which derivative cash flows are classified, added by ASU 2023-06.
ASC 230-10-55-1, the derivation of gross flows indirectly where the ledger does not capture them.
ASC 230-10-55-12, the illustrative cash-equivalent policy: highly liquid debt instruments with a maturity of three months or less when purchased.
ASC 230-10-55-20, the illustrative classification of a collection split between business interruption and property damage.

How PocketCPA uses these sources

Every lesson is written in original words and cites the paragraph each rule comes from. No standard's text is reproduced. How lessons and questions are written and checked is set out in our methodology.