Question

How would the statement of cash flow be different if a private university were a public college or university? Why would these differences be necessary?

The university reports a certain amount of unrestricted net assets each year. Suppose a student complained in a letter to the university president that the institution is holding back resources that should properly be used to increase faculty salaries; acquire computers and other equipment; and improve classroom facilities. What would your response be, as an accountant?

Suppose that a private university elected to report as a special-purpose government engaged in governmental and business-type activities. How would the financial statements differ from those presented? What are the pros and cons associated with reporting under each approach?

Answer 1

CASH FLOW STATEMENT

Meaning: A cash flow statement is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents and breaks the analysis down to operating, investing, and financing activities.

Necessity: The cash flow statement is intended to provide information on a firm’s liquidity and solvency, improve the comparability of different firms’ operating performance, and to indicate the amount, timing, and probability of future cash flows. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business.

A cash flow statement of a private university would include all three components above mentioned i.e. operating, investing and financing activities because a private university worked for a profit motive where in case of public college or university it is not necessary that it works for profit motive and there may be cases that operating activities might not be shown in statement.

If a student complained in a letter to the university president that the institution is holding back resources that should properly be used to increase faculty salaries; acquire computers and other equipment; and improve classroom facilities then as an accountant we should enquire about necessity of such equipment etc. because having sufficient cash and cash equivalent doesn’t mean to utilize as earliest but to ensure liquidity of organization also , so that in case of disruption organization must have sufficient funds to cope up with that disruption.

If a private university elected to report as a special-purpose government engaged in governmental and business-type activities then in only such case financial statements (Balance sheet, Profit & Loss account, Cash Flow Statement & Notes to accounts) should be reported in such a way that our stakeholders understand the importance and flow of funds. Separate notes should be made for government grants received, membership & subscription received and donations received.