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Friday, July 27, 2007

J-GAAP: Cash Flow Statements

Japanese accounting standard for cash flow statements is relatively new. It was issued in 1998. Previously, statements of fund flows, which presented direct inflows and outflows of cash and other short-term investments or monetary items, were attached to the financial statements that are filed with the then Ministry of Finance.

Formats of cash flow statements required by current Japanese GAAP are almost similar to those required by IAS 7 (revised 1992), Cash Flow Statements. Cash flow statements in Japan have three categories; i.e., cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Cash flows from operating activities are presented by either of the direct method or the indirect method.

Minor differences remain in presentation of cash receipts and payments of interest and dividends, and payments of income taxes. Japanese GAAP requires an entity to choose one of the two alternative methods. If an entity chooses the first method, it must present receipts of interest and dividends and payment of interest in the category of cash flows from operating activities. Under the second method, an entity must present receipts of interest and dividends in the category of cash flows from investing activities, and payments of interest and dividends in the category of cash flows from financing activities. IAS 7 states that receipts of interest and dividends are alternatively presented in either of the categories of cash flows from operating or investing activities, and payments of interests and dividends in either of cash flows from operating or financing activities.

IAS 7 allows presentation of income taxes in the cash flows from operating activities or presentation after allocating income taxes into the three categories when such cash flows for income taxes can be specifically identified into investing and financing activities. Japanese GAAP requires to present cash flow from income taxes only in the category of cash flows from operating activities.

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