Page 78 - Bankruptcy Volume 1

ed to operating cash flows are better reflected if the direct method is used to prepare the statement of
cash flows. fn 2

The operations section of the statement of cash flows based on the direct method is as follows:

Cash flows from operating activities:
Cash received from customers $ 2,220
Cash paid to supplier and employees (2,070)
Interest expense (3)

Net cash provided by operating activities be- 147
fore reorganization items
Operating cash flows from reorganization items:
Interest received on cash accumulated because 1
of the Chapter 11 proceeding
Professional fees in connection with the Chap- (50)
ter 11 proceeding
Net cash used by reorganization items (49)
Net cash provided by operating activities $ 98

If the indirect method is used, the debtor must also disclose in a supplementary schedule or in the notes
to the financial statements the details of the operating cash receipts and payments resulting from the re-
organization. The footnote or supplementary schedule includes the information from the reorganization
section of the statement of cash flows as presented in the preceding information.

The following example based on the indirect method satisfies the requirements of FASB ASC 852-10
and includes the reorganization items in the statement rather than the notes.

Net loss $ (118)
Adjustment to determine net cash provided by operating
items before reorganization items:
Depreciation 20
Loss on disposal of facility 60
Loss due to rejection of executory contract 10

Loss on discontinued operations 56
Increase in postpetition liabilities and other liabilities 250
Increase in accounts receivable (180)

fn 2 The direct method first presents the cash collected from customers and then the major categories of disbursements requiring cash.
The indirect method starts with net income and then adds or subtracts the adjustments necessary to determine cash flows from opera-
tions. The direct and indirect methods only influence the manner in which the cash flows from operations are presented. Thus, cash
flows for financing and investing activities are presented in the same manner under both the direct and indirect methods.

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