In accordance with the "Basic Standards for Enterprise Accounting," the Ministry of Finance issued Accounting Standard for Business Enterprises No. 31 — Statement of Cash Flows on 2006/2/15, effective as of 2007/1/1.
1. Overview of Guidelines
This standard specifies the preparation and presentation of the statement of cash flows. The statement of cash flows provides information about the inflows and outflows of cash and cash equivalents for an enterprise during a specific accounting period.
Cash and cash equivalents
Cash refers to a company's on-hand currency and deposits that are available for immediate payment. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
Classification of Class II and III Activities
Business Operations
Operating activities refer to all transactions and events other than investing and financing activities. They include cash flows from selling goods, providing services, purchasing goods, receiving services, and paying taxes.
Investment Activities
Investing activities involve the acquisition and disposal of long-term assets and other investments not included in cash equivalents.
Financing Activities
Financing activities are those that result in changes to the size and composition of a company's equity and debt.
3. Presentation Method
Direct and Indirect Methods
- • Operating cash flows should be presented using the direct method.
- • Enterprises shall use the indirect method to disclose in the notes information on reconciling net profit to cash flows from operating activities.
- • Cash flows from investing and financing activities shall be presented using the direct method.
4. Foreign Currency Cash Flows
Cash flows from foreign currencies and cash flows of overseas subsidiaries shall be translated using the spot exchange rate on the date the cash flow occurs, or an approximate rate determined by a systematic and reasonable method that is close to the spot exchange rate on that date.
Impact of exchange rate fluctuations
The effect of exchange rate changes on cash should be reported as a reconciling item in the statement of cash flows.
Regulatory Document Attachment
Accounting Standards for Business Enterprises No. 31 — Cash Flow Statements (PDF)