Editing Cash flow statement (section)

==History and variations==
Cash basis financial statements were very common before accrual basis financial statements. The "flow of funds" statements of the past were cash flow statements.

In 1863, the [[Dowlais Iron Company]] had recovered from a business slump, but had no [[cash]] to invest for a new [[blast furnace]], despite having made a profit. To explain why there were no funds to invest, the manager made a new financial statement that was called a ''comparison balance sheet'', which showed that the company was holding too much [[inventory]]. This new financial statement was the genesis of the cash flow statement that is used today.<ref>Watanabe, Izumi: ''The evolution of Income Accounting in Eighteenth and Nineteenth Century Britain'', [[Osaka University of Economics]], Vol.57, No. 5, January 2007, p.27-30 [http://www.osaka-ue.ac.jp/gakkai/pdf/ronshu/2006/5705_ronko_watanabe.pdf]</ref>

In the United States in 1973, the [[Financial Accounting Standards Board]] (FASB) defined rules that made it mandatory under [[Generally Accepted Accounting Principles (United States)|Generally Accepted Accounting Principles]] (US GAAP) to report sources and uses of funds, but the definition of "funds" was not clear. [[Net Working Capital|Net working capital]] might be cash or might be the difference between [[current asset]]s and [[current liability|current liabilities]]. From the late 1970 to the mid-1980s, the FASB discussed the usefulness of predicting future cash flows.<ref>Epstein, p. 90.</ref> In 1987, FASB Statement No. 95 (FAS 95) mandated that firms provide cash flow statements.<ref>Bodie, p.454.</ref> In 1992, the [[International Accounting Standards Board]] (IASB) issued
International Accounting Standard 7 (IAS 7), ''Cash Flow Statement'', which became effective in 1994, mandating that firms provide cash flow statements.<ref>Epstein, p. 88</ref>

US GAAP and IAS 7 rules for cash flow statements are similar, but some of the differences are:
* IAS 7 requires that the cash flow statement include changes in both cash and cash equivalents. US GAAP permits using cash alone or cash and cash equivalents.<ref name="Epstein, p. 91"/>
* IAS 7 permits bank borrowings (overdraft) in certain countries to be included in cash equivalents rather than being considered a part of financing activities.<ref>Epstein, p. 92.</ref>
* IAS 7 allows interest paid to be included in operating activities or financing activities. US GAAP requires that interest paid be included in operating activities.<ref name="Epstein, p. 93">Epstein, p. 93.</ref>
* US GAAP (FAS 95) requires that when the direct method is used to present the operating activities of the cash flow statement, a supplemental schedule must also present a cash flow statement using the indirect method. The [[International Accounting Standards Committee]] (IASC) strongly recommends the direct method but allows either method. The IASC considers the indirect method less clear to users of financial statements. Cash flow statements are most commonly prepared using the indirect method, which is not especially useful in projecting future cash flows.