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Govt. accounting-differences in the Statement of Cash Flows

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Although proprietary fund accounting is similar to business accounting, there are considerable differences in standards pertaining to the statement of cash flows. What are the main differences? When answering this question, please use a few examples of when you have had to create a statement of cash flows and the type of business you were accounting for.

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Solution Summary

This solution discusses the differences in a proprietary fund accounting statement of cash flows and discusses examples and types of businesses where this is applicable.

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Proprietary fund accounting is very similar to the standards that are practiced in business and financial accounting, with exception given to the statement of cash flows. The main difference is that when a governmental entity prepares a statement of cash flows, it must be under the direct method. Most public entities prefer using the indirect method because the direct method is often faulted for providing too much information regarding the entity's activities, financing, cash, and operations. While this information is valuable to investors, creditors, and other users of the public entity's financial statements, it can be very damaging in terms of competitors. It gives competitors an advantage because they can gain a large amount of data regarding their competitor's operations.

However, the governmental entity must use the direct method to prepare their statement of cash flows, without exception. When a public entity prepares a statement of cash flows using either the direct or ...

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