Business-combination net cash flow

The acquisition accounting and the statement of cash flows answer different questions. The purchase-price allocation measures assets acquired, liabilities assumed, consideration, and goodwill. The cash-flow line reports actual cash paid after accounting for cash acquired with the business.

Build the acquisition cash bridge

Start with cash consideration transferred. Subtract the acquired cash and cash equivalents included in the statement population. Keep stock issued, liabilities assumed, and other noncash consideration outside the cash amount. Reconcile transaction costs and contingent payments under their own facts and guidance.

The illustration in ASC 230-10-55-10 shows a payment for an acquired entity net of cash acquired. Its supporting facts in ASC 230-10-55-20 separate the cash acquired from the other assets and liabilities. Use the illustration to understand the bridge; research the applicable guidance for the actual transaction.

For example, $320,000 cash consideration less $45,000 acquired cash produces a $275,000 net investing outflow. Stock consideration and assumed debt do not increase that outflow.

Preserve the deal reconciliation

Tie the bridge to the closing statement, bank records, acquired trial balance, and purchase-price allocation. The business-combination scope and measurement conclusions are supplied from the acquisition file. A correct net cash amount does not approve those conclusions or prove that all transaction-related cash has been classified correctly.