Where may the reconciliation between cash flows from operating activities and operating income be reported?

Where may the reconciliation between cash flows from operating activities and operating income be reported?

• A. Face of the proprietary fund statement of revenues, expenses, and changes in net assets/equity
• B. Notes to the financial statements
• C. Schedule accompanying the statement of cash flows
• D. A or C

Answer: (C)

The reconciliation between cash flows from operating activities and operating income is often reported in a schedule accompanying the statement of cash flows. This reconciliation is important because it helps to clarify the adjustments made between accrual accounting, which is used for operating income, and cash accounting, which reflects cash flows. By providing this reconciliation, users of financial statements can better understand how net income reconciles to cash flows, highlighting differences due to non-cash items and changes in working capital. This enhances transparency and allows stakeholders to gain a clearer picture of the organization’s cash-generating ability. While the face of the proprietary fund statement of revenues, expenses, and changes in net assets/equity and notes to the financial statements are important components of financial reporting, they are less commonly used for this specific reconciliation. The schedule accompanying the statement of cash flows is specifically designed to serve this purpose, making it the correct answer.

The reconciliation between cash flows from operating activities and operating income is often reported in a schedule accompanying the statement of cash flows. This reconciliation is important because it helps to clarify the adjustments made between accrual accounting, which is used for operating income, and cash accounting, which reflects cash flows.

By providing this reconciliation, users of financial statements can better understand how net income reconciles to cash flows, highlighting differences due to non-cash items and changes in working capital. This enhances transparency and allows stakeholders to gain a clearer picture of the organization’s cash-generating ability.

While the face of the proprietary fund statement of revenues, expenses, and changes in net assets/equity and notes to the financial statements are important components of financial reporting, they are less commonly used for this specific reconciliation. The schedule accompanying the statement of cash flows is specifically designed to serve this purpose, making it the correct answer.