(v4080.00) Cash Flow Adjustment: Source

If your Cash Flow from Operations (v4100) includes nonoperating or noncash accounts, you can use the adjustment account to exclude the effect of those accounts from the operating cash flows used for valuation.

An example of a noncash account is the portion of Fixed Capital Investment (v2170.01) that reflects a foreign-currency translation adjustment. A translation gain overstates Fixed Capital Investment (v2170.01) and therefore understates Cash Flow from Operations (v4100). Conversely, a translation loss understates Fixed Capital Investment (v2170.01) and overstates Cash Flow from Operations (v4100).

An example of a nonoperating account is the portion of Fixed Capital Investment (v2170.01) that represents the “Allowance for Funds Used During Construction” (AFUDC). This allowance is used by utility companies to reflect an imputed financing cost in their fixed assets. Including AFUDC overstates Fixed Capital Investment (v2170.01) and understates Cash Flow from Operations (v4100).

To correct an understatement of Cash Flow from Operations (v4100) (such as, from a translation gain or the effect of AFUDC), enter the amount of the noncash or nonoperating account as a positive number into Cash Flow Adjustment: Source (v4080).

To correct an overstatement of Cash Flow from Operations (v4100) (such as from a translation loss), enter the amount of the noncash account as a negative number into Cash Flow Adjustment: Source (v4080).

If the value entered in this account is a reclassification of accounts from operating to nonoperating or the converse, no further adjustment is required. If the value represents actual cash flow, enter it into Funds Flow Adj: Source (v3000) or Funds Flow Adj: uses (v3020) so that its impact is recognized in Retained Earnings (v2850).