ASC

ASC 230-970

Real Estate—General

230 Statement of Cash Flows

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In brief

IntermediateCash flowsPresentationInventory and PP&EIndustry-specific

This Subtopic addresses how a real estate entity classifies cash payments to purchase real estate in the statement of cash flows. Real estate is generally a productive asset, so its purchase is an investing cash outflow; but if a developer acquires real estate specifically for resale (to be subdivided, improved, and sold in lots), the payment is an operating cash flow because the property is akin to inventory.

Key points (5)
  • This Subtopic provides cash flow classification guidance regarding cash payments to purchase real estate (230-970-05-1).
  • The Topic 230 definitions of operating and investing activities are flexible enough to accommodate assets that are generally productive assets but in certain cases are inventory (230-970-45-1).
  • A cash payment to purchase real estate is generally an investing cash outflow because real estate is generally a productive asset (230-970-45-1).
  • If a real estate developer acquires real estate to be subdivided, improved, and sold in individual lots, the purchase payment is classified as an operating cash flow because the real estate is acquired specifically for resale and is similar to inventory (230-970-45-1).
  • The scope of this Subtopic follows the Overall Real Estate Subtopic scope in Section 970-10-15 (230-970-15-1).

For students. Classic exam trap: students reflexively call every real estate purchase an investing outflow, but intent governs — a developer buying lots for resale reports operating outflows, which materially changes reported operating cash flow.

operating activitiesinvesting activitiesproductive assetreal estate held for resaleinventory classificationcash flow classificationreal estate developer

Machine-generated study aid for ASC 230-970. Check the source paragraphs below.

230-970-05Overview and Background

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230-970-05-1
This Subtopic provides cash flow classification guidance regarding cash payments to purchase real estate.

230-970-15Scope and Scope Exceptions

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Overall Guidance

230-970-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 970-10-15.

230-970-45Other Presentation Matters

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230-970-45-1
The definitions of operating and investing activities in Topic 230 provide flexibility for the appropriate classification of cash receipts and payments for assets that generally are productive assets but in certain cases may be inventory. For example, real estate generally is considered a productive asset, and a cash payment to purchase real estate generally is an investing cash outflow. However, if real estate is acquired by a real estate developer to be subdivided, improved, and sold in individual lots, then the cash payment to purchase that real estate would be classified as an operating cash flow because the real estate is acquired specifically for resale and is similar to inventory in other businesses.

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