1. What are the differences between a cash flows statement prepared for a governmental electric utility versus one prepared for an investor-owned utility?

Question

Juliette

Business

14 December, 04:10

1. What are the differences between a cash flows statement prepared for a governmental electric utility versus one prepared for an investor-owned utility?

+5

Answers (1)

Know the Answer?

Layne Roy · Answer 1

The governmental electric utility uses a direct method while an investor-owned utility can use an indirect method.

The governmental electric utility classifies transactions into four categories while an investor-owned utility classifies into three categories.

Explanation:

For a governmental electric utility, the direct method which uses actual cash inflows and outflows from the company's operations is used in preparing the statement of cash flow. Unlike businesses, government cannot use the indirect method which involves adjustment of net income with changes in balance sheet accounts to obtain the cash amount generated by the company's operating activities.

Cash flows are classified differently for the government and a business. A statement of cash flow for a governmental enterprise in categorized into 4 as opposed to businesses that are classified into 3. Interest receipts are not reported as operating cash flows but as cash flows from non-capital or capital financing.