Disclosure of Non-Cash Activities

The disclosure of non-cash activities is done on a company’s cash flow statement. However, these activities are not included in the body of the statement because no cash was involved. They're disclosed as a footnote or an attachment. Excluding these activities from your cash flow statement can misrepresent how your company is doing. Your accountant can help you determine which non-cash activities should be included on your cash flow statement.

A cash flow statement is a financial document usually prepared by an accountant that summarizes cash, and cash equivalents, flowing into and out of a business. It shows where a business’s money is coming from and where it’s going for the time period shown at the top of the statement. The information on it is organized into three parts: operating, investing and financing activities. Ideally, the cash coming in is significantly greater than the cash going out.

Apart from giving you a snapshot of how a business is doing, the cash flow statement is important to investors, potential investors and creditors. It allows them to see how well (or not) cash is being managed and what's being done to generate more cash for ongoing bills and operating expenses.

Cash is unrestricted money that you have quick and easy access to. It includes your business’s checking and savings account balances, any checks that have not yet been deposited and even the money in your petty cash box. Cash equivalents are very short-term, unrestricted investments such as Treasury bills, short-term government bonds, readily marketable securities, commercial paper and money market funds.

Big decisions can hinge on a healthy or unhealthy looking cash flow statement. To present an accurate accounting of your business it must include non-cash activities that could have an impact. Examples of non-cash activities are issuing stock to pay off a long-term debt or converting preferred stock to common stock. For a small business, non-cash activities could be buying equipment with a promissory note or signing a lease-purchase agreement for an expensive commercial-grade copier. No cash was exchanged but these activities should be disclosed.

Non-cash activities usually are disclosed at the bottom of a cash flow statement. However, they also can be included as an attachment to the cash flow statement. The entry at the bottom of a cash flow statement would say something such as “Non-cash Investing and Financing Activities” and have a brief description of each non-cash transaction and its monetary value. Alternatively, a separate document labeled “Schedule A,” for example, may be attached to your cash flow statement. Both methods meet International Financial Reporting Standards and generally accepted accounting standards.

Along with other financial documents such as income statements and balance sheets, cash flow statements are essential to evaluating a business’s profitability and strength. But the picture a cash flow statement presents would be incomplete without full disclosure of non-cash activities. These activities could affect a business’s performance and future potential. Both IFRS and generally accepted accounting principles require disclosure of non-cash activities.