Regarding the Statement of Cash Flows for a Proprietary Fund (Governmental Accounting), which of the following statements is TRUE?

Answer options:

Interest payments are classified as Operating Activities.

The indirect method is optional.

A reconciliation of Operating Income to Net Cash from Operating Activities is required.

Capital asset purchases are classified as Investing Activities.

How to approach this question

Distinguish GASB cash flow rules from FASB (commercial) rules. GASB: Direct method required. 4 Categories (Operating, Noncapital Financing, Capital Financing, Investing). Interest exp is Financing. Capital assets are Capital Financing.

Full Answer

C.A reconciliation of Operating Income to Net Cash from Operating Activities is required.✓ Correct

GASB Statement 9 requires proprietary funds to use the Direct Method for the Statement of Cash Flows and to present a reconciliation of Operating Income to Net Cash Provided by Operating Activities. (Note: FASB allows Indirect, GASB mandates Direct).

Common mistakes

Applying FASB rules to GASB questions (e.g., interest as operating, indirect method allowed).

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