In 1961 the AICPA recognized the importance of the funds statement by publishing Accounting Research Study No. 2, “‘Cash Flow’ Analysis and the Funds Statement.” Prior to this time, accountants had prepared funds statements primarily as management reports. The Accounting Principles Board responded by issuing APB Opinion No. 3, “The Statement of Source and Application of Funds,” which recommended that a statement of source and application of funds be presented on a supplementary basis. Because of the favorable response of the business community to this pronouncement, the APB issued Opinion No. 19, “Reporting Changes in Financial Position” in 1971. This opinion required that a statement of changes in financial position be presented as a basic financial statement and be covered by the auditor’s report.
In 1981 the Financial Accounting Standards Board reconsidered funds flow issues as part of the conceptual framework project. At this time, the FASB decided that cash flow reporting issues should be considered at the standards level. Subsequent deliberations resulted in Statement of Financial Accounting Standards (SFAS) No. 95, “Statement of Cash Flows.”

Instructions
(a) Explain the purposes of the statement of cash flows.
(b) List and describe the three categories of activities that must be reported in the statement of cash flows.
(c) Identify and describe the two methods that are allowed for reporting cash flows from operations.
(d) Describe the financial statement presentation of noncash investing and financing transactions. Include in your description an example of a noncash investing and financing transaction.