P3: the cash flow statement by ASC 230 (defect 1, D-35, D-42)

Direct method with the operating reconciliation and noncash schedules; it
foots by construction (Lean and Kani). Every non-cash account belongs to
one section; reversals net; a member or lender paying for the company is
cash borrowed and spent (D-42, constructive receipt and disbursement);
property a member contributes stays noncash. The bookspec seed: one loader
checks every example.

Co-Authored-By: Claude Opus 5.5 <noreply@anthropic.com>
Claude-Session: https://claude.ai/code/session_01T3gXMVt7XJPi6ens1or9Dj

docs/capability-parity.md

@@ -16,7 +16,7 @@ Statuses: `covered` (built and tested), `partial` (built, known gaps listed),
 | 2 | Chart of accounts | engine + `books.chart` (with live balances) | covered |
 | 3 | Live P&L tab | engine + `books.profit_and_loss` | covered |
 | 4 | Live Balance Sheet tab | engine + `books.balance_sheet` | covered |
-| 5 | Live Cash Flow tab | engine `cash_flow` (indirect) + `books.cash_flow` | covered |
+| 5 | Live Cash Flow tab | engine `cash_flow` (direct, with the reconciliation schedule) + `books.cash_flow` | covered |
 | 6 | Transaction Journal as append-only log | engine posting log + `books.search_entries` | covered |
 | 7 | Receipt storage in Drive | blob store + `books.attach_receipt` / `link_receipt` / `unlink_receipt` / `withdraw_attachment` | covered |
 | 8 | Document filing by category (01 Formation / 02 Legal / 03 Tax / 04 Accounting) | `books.file_document` | covered |

docs/mcp-interface.md

@@ -453,10 +453,58 @@ every tool over every book in ledger-store's `tests/fixtures/old-books`.
   `revenue_accounts` and `expense_accounts` for the range. `end` defaults to
   today, `start` to the first posted entry. Closing entries are excluded, so
   a closed period still shows what it earned.
-- `books.cash_flow { start?, end?, cash_accounts?, financing_accounts?, investing_accounts? }` (each defaults to `[books]` in wanderbooks.toml; cash is required one way or the other)
-  → indirect-method cash flow statement. `cash_accounts` are the reconciling
-  accounts (required); the three sections always sum to their net change.
-  Disposal gains/losses move from operating to investing automatically.
+- `books.cash_flow { start?, end?, cash_accounts?, financing_accounts?, investing_accounts? }` (each defaults to the books' settings, `books.cash_accounts` and so on; cash is required one way or the other)
+  → the statement of cash flows, direct method (rules.md B-14, P3 defect
+  1): `{ method: "direct", start, end, operating_by_class, operating,
+  cash_from_operations, investing_by_kind, investing, cash_from_investing,
+  financing_by_kind, financing, cash_from_financing, net_change_in_cash,
+  cash_beginning, cash_ending, noncash_disclosures,
+  operating_reconciliation, reconciles, warnings }`.
+  - Lines (`operating`, `investing`, `financing`) are one per entry, section
+    and kind: `{ entry, date, label, kind, amount, on_behalf?, accounts,
+    reverses?, class? }`; every transaction is listed (D-35), each under its
+    kind. An entry's interest is its own operating class, (b) or (e), apart
+    from the rest of its operating cash. What a member or a lender paid or
+    received for the company with no cash account moving is cash borrowed
+    (or contributed) and spent, on the entry's date (D-42, rules.md B-14
+    rule 11): an expense a member paid personally through Due to Members
+    is a "Proceeds from borrowing — <account>" line and an operating
+    line, each with `on_behalf`, the part of its amount so handled (absent
+    when none; an entry's `on_behalf` parts net to zero).
+    Labels never come from a reversal's sign: "Reversal of #N — …",
+    "Reinstatement of #A (reverses #B)". An entry and its reversal in the
+    same period drop out together.
+  - `operating_by_class`, `investing_by_kind`, `financing_by_kind`:
+    `{ kind, class?, amount, entries }`, how the printed statement shows the
+    sections: operating by ASC 230-10-45-25 class (`from_customers`,
+    `interest_and_dividends_received`, `other_receipts`,
+    `to_suppliers_and_employees`, `interest_paid`, `income_taxes_paid`,
+    `other_payments`), investing and financing by kind ("Contributions from
+    members — <member>", "Repayments of borrowing — <account>", "Purchases
+    of property and equipment", …).
+  - `noncash_disclosures`: `{ entry, date, label, amount, operating,
+    investing, financing, exchanged, reverses? }`, the investing and
+    financing activities no cash settled (ASC 230-10-50-3): property
+    contributed, debt converted to equity, a purchase on the seller's
+    credit, interest charged into a loan, the noncash part of a part-cash
+    purchase.
+  - `operating_reconciliation`: `{ net_income, lines: [{ kind, label,
+    amount, account?, entries }], net_cash_from_operating }`, net income
+    reconciled to operating cash (ASC 230-10-45-30), kinds `depreciation`,
+    `investing_gain_loss`, `noncash_through`, `other_noncash`,
+    `operating_balance_change`.
+  - `reconciles`: `{ sections_sum, net_change, difference }`; `difference`
+    is always `"0.00"`: a statement that wouldn't foot is an engine error,
+    never output.
+  - `warnings`: `{ entry, kind, message }` for an entry whose later payment
+    or collection the books can't classify (`asset_on_operating_payable`,
+    `asset_sold_on_operating_receivable`), with the fix.
+  - Refused, naming the setting, when the roles contradict the chart or
+    each other (cash and investing accounts must be assets, financing
+    accounts liabilities or equity; no account in two lists or twice in
+    one; no registered asset's account as cash).
+  - Changed in P3 (breaking): `net_income`, `depreciation` and
+    `working_capital` are gone (net income is in `operating_reconciliation`).
 - `books.digest { since: "2026-10-01" }`
   → `{ entries_posted: [...], totals_by_account: [...], stale_rules: [...] }`.
   The human review surface: "what did the AI do with my books lately." The
@@ -1133,8 +1181,15 @@ posting.
 - `books.export { format, report, start?, end?, as_of?, cash_accounts?,
   financing_accounts?, investing_accounts? }` → `{ content,
   content_encoding?, warnings? }`.
-  - Reports: `profit_and_loss`, `balance_sheet`, `cash_flow` (needs
-    `cash_accounts`), `trial_balance`, `members_equity` (statement of
+  - Reports: `profit_and_loss`, `balance_sheet`, `cash_flow` (direct
+    method; needs `cash_accounts`; json is `books.cash_flow`'s answer, csv
+    is `section,kind,class,entry,date,label,amount,on_behalf` (`on_behalf`
+    on a section's lines only) with sections
+    `operating`, `investing`, `financing`, `reconciliation`, `noncash`,
+    `footing` and `warning` (its kind, entry and message; no amount); xlsx
+    and pdf are the printed statement, operating by class and investing
+    and financing by kind with each kind's transactions under it, with its
+    two schedules), `trial_balance`, `members_equity` (statement of
     changes in members' equity; members from `wanderbooks.toml`; earnings
     not yet closed are split the way the next members close will split
     them, so a member's capital on a day never changes when its month is
@@ -1506,7 +1561,10 @@ entries.
   README says which. With TINs it adds `party_id, tin_last4, tin,
   tin_type, tin_note`. A zip with the full set, each
   statement as PDF and XLSX: `profit-and-loss`, `balance-sheet`,
-  `cash-flow` (reconciled to `cash_accounts`), `members-equity`
+  `cash-flow` (the direct method, as `books.export` prints it: operating
+  by class, investing and financing by kind with each member named, and
+  its two schedules; reconciled to the package's cash accounts),
+  `members-equity`
   (multi-member LLCs), `trial-balance`; plus `general-ledger.xlsx` and
   `general-journal.xlsx`. Period reports cover the fiscal year to date.
   What the CPA needs; they never log into the system.

docs/parity.md

@@ -28,7 +28,7 @@ No other statuses.
 | Reversing entries | Reverse transaction | done | linked via `reversal_of` |
 | Canonical report snapshots (JSON) | — (our oracle format) | done | `reports::snapshot` |
 | Fixed-asset register + straight-line depreciation | Fixed Asset register | done | `assets.rs`; golden-covered schedule; idempotent runs; disposal with gain/loss |
-| Cash flow statement (indirect) | Reports → Cash Flow | done | R-FUTURE-3 |
+| Cash flow statement (direct, with the reconciliation schedule and noncash disclosures) | Reports → Cash Flow | done | R-FUTURE-3; rules.md B-14 (P3 defect 1) |
 | Foreign-currency lines (base + foreign stored) | Multi-currency accts | done | R-FUTURE-1 |
 | Period close (closing entry to Retained Earnings) | Close books | done | R-FUTURE-2 |
 | Bank reconciliation (cleared flags + report) | Reconcile | done | — |

docs/requirements.md

@@ -113,7 +113,9 @@ requirement conflict, the requirement wins.
 
 ## Promoted from future (done)
 
-- **R-? — Cash flow statement** (indirect method). Was R-FUTURE-3.
+- **R-? — Cash flow statement** (direct method, with the reconciliation
+  of net income to operating cash and the noncash investing and financing
+  activities; rules.md B-14, P3 defect 1). Was R-FUTURE-3.
   `ledger-core::reports::cash_flow` + `books.cash_flow`.
 - **R-? — QuickBooks-compatible import/export.** Was R-FUTURE-4.
   `ledger-import` crate: CSV bank/chart import, IIF and XLSX export.

docs/spec/README.md

@@ -63,4 +63,13 @@ Read on 2026-10-13 through Deloitte's free DART roadmaps, which reproduce
 ASC text: ASC 230-10-45-16 and -28, 326-20-55-37/38, 606-10-25-23, 45-2,
 55-37/38, 830-20-30-1. Read directly in the ASC basic view on 2026-10-14
 (`sources/fasb-asc.md`): 360-10-35-4, 340-10-05-2/4/5, 210-10-45-1/2/5,
-230-10-45-7/10/12/13/14/15, 606-10-55-36 through 55-38. None left open.
+230-10-45-7/10/12/13/14/15, 606-10-55-36 through 55-38. Read on
+2026-10-20 where public sources reproduce the Codification (EY's FRD on
+the statement of cash flows, July 2026; FASB ASUs 2016-15 and 2016-18;
+Deloitte's public DART Roadmap): ASC 230-10-10-1, 45-1, 45-4, 45-5,
+45-8, 45-9, 45-12(c), 45-13(c), 45-14(a), 45-15(a)/(c), 45-16(a)/(b),
+45-17, 45-24 to 45-26, 45-28 to 45-31, 50-3 to 50-8, and 830-230-45-1;
+each checked again against the same sources in the P3 review (numbers,
+pages and wording hold). Open: 105-10-05-1 to 05-3, read only in their
+2009 text (ASU 2009-01, and as Wiley GAAP 2020 quotes them); their
+current wording is unconfirmed.

docs/spec/rules.md

@@ -356,51 +356,309 @@ earnings the same running way, D-38, 2026-10-20)
 `a_yen_members_page_splits_in_whole_yen`; the bookspec examples
 `members-close.*`.
 
-## B-14 Statements: P&L for a period; cash flow by the indirect method
+## B-14 Statements: P&L for a period; cash flows by the direct method
 
-**Status:** AUTHORITY
+**Status:** AUTHORITY, except where marked CONVENTION or DECISION
 
-ASC 230-10-45-28 (cited): an entity not using the direct method "shall
-determine and report the same amount for net cash flow from operating
-activities indirectly by adjusting net income … (the indirect or
-reconciliation method)." ASC 230-10-45-16: "All of the following are cash
-inflows from operating activities: Cash receipts from sales of goods or
-services…". A closing entry is not income or spending (B-11), so period
-statements exclude it.
+The P&L covers a period; a closing entry is not income or spending
+(B-11), so period statements exclude it.
 
-Investing and financing are gross (ASC 230-10-45-7, read directly
-2026-10-14, `sources/fasb-asc.md`:
-"information about the gross amounts of cash receipts and cash payments
-during a period is more relevant than information about the net
-amounts"; 45-8 allows netting only where "the turnover is quick, the
-amounts are large, and the maturities are short"). Financing inflows
-include "Proceeds from issuing equity instruments" and "other short- or
-long-term borrowing" (45-14(a), (b)); outflows include "distributions to
-owners" and "Repayments of amounts borrowed" (45-15(a), (b)). Every cash
-flow is investing, financing, or operating (45-10). Investing
-"include[s] making and collecting loans and acquiring and disposing of
-debt or equity instruments and property, plant, and equipment" (ASC
-230-10-20). Which accounts hold loans made, investments, and debt is a
-fact of each company's chart, so it is a setting: `[books]
-financing_accounts` and `investing_accounts` in wanderbooks.toml (with
-`cash_accounts`), read by the MCP tools and the viewer alike.
+The statement of cash flows (P3 defect 1, D-35, D-42; the paragraphs were read
+in public sources that reproduce the Codification, `sources/fasb-asc.md`):
 
-Money an owner advances, by paying a company expense personally (a
-"Due to owners" liability), is borrowing: PwC Viewpoint, Financial
-statement presentation 6.9.3.1 (constructive receipts and
-disbursements) presents cash a third party pays on the entity's behalf
-"as though the transaction took place through the bank accounts of the
-reporting entity": a financing inflow and an operating outflow. Listing
-that liability in `financing_accounts` gives exactly that; repaying the
-owner is then a repayment of amounts borrowed. "Judgment is required"
-(PwC), so it is the company's setting, not a fixed rule.
+1. **Cash receipts and payments.** The statement reports "the cash
+   effects" of operations, investing and financing (ASC 230-10-45-1; its
+   objective, 10-1: "cash receipts and cash payments"). An entry
+   contributes to the body only its net movement of the cash accounts,
+   and what a member or a lender paid or received for it (rule 11, which
+   nets to zero within the entry); an entry that moves neither
+   contributes nothing; a transfer between two cash accounts is no flow. The period is [start, end], inclusive. The
+   cash accounts are every account holding cash, cash equivalents or
+   restricted cash: the statement explains the change in their total
+   (45-4, as ASU 2016-18 amended it), and transfers among them "are not
+   reported as cash flow activities" (45-5). Which accounts those are is
+   the books' `books.cash_accounts`.
+2. **Partition.** Every receipt and payment is investing, financing or
+   operating (45-10), so every non-cash account is in exactly one section:
+   investing (the cost and accumulated-depreciation accounts of every
+   registered fixed asset, and `books.investing_accounts`); financing
+   (equity, and `books.financing_accounts`); operating (every other
+   balance-sheet account, and revenue and expense, but see rule 4). The
+   roles must agree with the chart and each other, or the statement is
+   refused with the setting to change: cash and investing accounts are
+   assets; financing accounts are liabilities (equity listed is accepted:
+   it is financing anyway); no code twice in a list or in two lists; no
+   registered asset's account as cash; at least one cash account. One
+   check (`cashflow::role_problems`) is behind both the refusal and
+   `books.settings`' problems.
+3. **Only the cash portion** of a part-cash transaction is reported
+   (50-5). An entry's cash `c` is applied to the sections moving against
+   it, in the order operating, investing, financing, each up to its own
+   movement; what is left of a section's movement is the entry's noncash
+   part, disclosed (rule 7). CONVENTION: the order (the ASC is silent on
+   allocating within one entry); it matters only for an entry with a
+   noncash source and two or more sections paid by cash, and is disclosed.
+   Within a section the same order splits the cash among its kinds (rule
+   5).
+4. **Gains and losses on investing assets are investing**: receipts from
+   sales of PP&E are investing (45-12(c)), so the whole proceeds are, and
+   the gain or loss is taken out of net income (45-28(b)). In an entry that
+   credits a registered cost account or an investing account, the revenue
+   and expense lines are investing, except interest, received or paid (tax
+   categories `interest_income` and `interest_expense`): interest is
+   operating in any entry (45-16(b), 45-17(d)). The trigger is broad (a
+   return, a reclass or an impairment credits the cost account too), so the
+   reconciling line reads "(Gain) loss and other noncash changes in
+   investing assets".
+5. **Gross lines by kind** (45-7; investing and financing inflows and
+   outflows "reported separately", 45-26). One line per entry, section and
+   kind, with the entry, date, label and the kind's accounts. Operating
+   lines carry the class 45-25 requires "at a minimum" (a)-(g), kind by
+   kind within the entry, by the direction of the cash: the cash an
+   entry's `interest_income` lines take is (b) interest received, and its
+   `interest_expense` lines' (e) interest paid, whatever else the entry
+   settles (a loan payment on an operating payable is (d) for the
+   principal and (e) for the interest, never all (e)); the rest of its
+   operating cash, by its other operating lines: a receipt is (a) if a
+   line is revenue or the receivables control, or the entry's party is a
+   customer, else (c); a payment is (g) if every such line is on an
+   account whose tax category is `taxes_licenses` (payments to
+   governments for taxes and fees are 45-17(c), apart from suppliers'
+   45-17(b); 45-25 names only income taxes, (f)), else (d) if a line is
+   an expense, a liability or a non-receivables asset, else (g). (Interest paid back out
+   is (g); interest refunded to the company, (c).) The operating cash is
+   split among these kinds as a section's among its kinds (rule 3), in
+   the order: the rest, interest received, interest paid (CONVENTION).
+   Class (f) stays empty until a tax category marks an entity-level income
+   tax (a
+   partnership pays none "as such", IRC §701, but can under §6225 or a
+   state pass-through election). Investing and financing kinds (D-35):
+   purchases and sales of property and equipment, payments for and
+   collections on each investing account, contributions from and
+   distributions to each member (by name; equity not a member's by
+   account), proceeds of and repayments of each financing liability. An
+   original's direction is its nature (45-15(a): cash out of equity is a
+   distribution). The printed statement and the viewer show operating one
+   row per class, and investing and financing one row per kind with its
+   total, each transaction listed under it (D-35); `books.cash_flow` and
+   the exports carry every line. Known limits: an entry's other operating
+   lines take one class, so its mixed receipts and payments other than
+   interest net within it; class (b) relies on portfolio interest being
+   categorized `interest_income` (interest receivable collected is (c)).
+6. **Reversals.** A reversal takes its chain root's sections, class and
+   kind, with its own sign (`Ledger::reversal_chain`). Pairing walks each
+   chain from its root: an entry and its reversal both in the period drop
+   out of every line and disclosure, when their flows are exact negatives
+   (proved, and checked at runtime), so a reversal of a reversal whose
+   partner is paired is shown. A reversal shown alone is labelled
+   "Reversal of #N — <N's description>", a reinstatement "Reinstatement
+   of #A (reverses #B)", listed under the original's kind: never a label
+   from a reversal's sign (D1-c).
+7. **Noncash investing and financing activities are disclosed** (50-3,
+   50-4; placement, 50-6). Disclosed: every entry not netted whose noncash
+   part moves financing, or moves investing through an account that is
+   neither accumulated depreciation nor a rule-4 P&L line, or that
+   exchanges inside investing and financing without cash (50-4's
+   "converting debt to equity", a note for equipment, a trade-in): `x =
+   max(0, min(D - out, C - in))` over the net debits `D` and credits `C`
+   of its investing and financing balance-sheet accounts, `in` and `out`
+   the cash those two sections took in and paid out, what a member or
+   lender handled for the entry included (rule 11: equipment a bank paid
+   for is 1,000 in and 1,000 out, nothing exchanged). Amount: `max(Σ
+   max(r_k, 0), x)`. Depreciation is a
+   reconciling item, not an activity. Limit: a trade-in within one cost
+   account nets away.
+8. **Net income reconciled to operating cash**, a separate schedule with
+   the direct method (45-30; major classes of reconciling items, 45-29;
+   what is removed, 45-28): operating = NI + G + X + W, over the period's
+   non-closing entries. NI, net income; G, the rule-4 P&L lines; X, each
+   entry's operating noncash part, as "Depreciation" (its investing and
+   financing balance-sheet lines all accumulated depreciation), "Noncash:
+   through <A>" (those lines, accumulated depreciation aside, all on A),
+   or "Other noncash items"; W, minus each
+   operating balance-sheet account's movement ("Increase in" / "Decrease
+   in"). An identity over balanced entries (Lean
+   `operating_reconciliation_ties`), checked at runtime.
+9. **The sections foot** (45-24: the statement reconciles beginning and
+   ending cash). `reconciles {sections_sum, net_change, difference}`; any
+   difference, a section unequal to its lines, or a reconciliation unequal
+   to operating is `CashFlowDoesNotFoot`, an engine error: nothing is
+   produced. It can't happen on posted entries (Lean
+   `cashflow_sections_sum_to_cash_change`, `Reachable.cashflow_foots`).
+10. **Closing entries are never in the statement** (B-11). A close moves
+    only revenue, expense and equity, and cash accounts are assets, so a
+    close has no cash line.
+11. **What a member or a lender pays, or receives, for the company is
+    cash the company borrowed (or a member contributed) and spent**
+    (DECISION, D-42, the owner, 2026-10-20, revising D-35's first point;
+    bookspec's CHOICE: the standard leaves it open).
+    *Source.* The Codification does not address a payment a third party
+    makes on the entity's behalf (PwC Viewpoint FSP 6.9.3: "ASC 230 does
+    not address these situations"; BDO Blueprint 3.4: "While ASC 230 is
+    silent"; EY FRD 4.6.2: "judgment will be needed"; KPMG Handbook
+    Q8.3.10), so 105-10-05-2 sends the question to nonauthoritative
+    guidance. There the firms present it by substance, as constructive
+    receipt and disbursement: PwC 6.9.3.1, "a reporting entity should
+    include cash flows received or paid by a third party on behalf of the
+    reporting entity" (a bank paying a vendor: "a financing inflow ... and
+    an operating outflow"); DART Roadmap 7.2 (third-party financing,
+    Example 7-2: a lender paying an insurance premium, an operating outflow
+    and a financing inflow; the contrast, a supplier's own finance arm, is
+    AICPA TQA 1300.16 and the SEC staff's 2005 view: noncash); BDO 3.4
+    (Example 3-5: a bank paying for equipment, an investing outflow and a
+    financing inflow; it names "a parent might pay on behalf of a
+    subsidiary expenses"); EY 5.2.4 and 5.3.1 (third-party financing,
+    unlike the seller's, is a financing inflow and an operating or
+    investing outflow). KPMG Q8.3.10 also accepts a noncash presentation
+    for equipment a lender pays for. A CPA would present it as the firms
+    do; the change in cash is the same either way. The rule, entry by
+    entry, after its own cash (rule 3; `kernel::constructive`):
+    - **Paid for the company.** A financing liability
+      (`books.financing_accounts`: the members' financing account such as
+      Due to Members, a loan, a card listed as financing) credited against
+      operating or investing lines debited paid for them: a financing
+      inflow under the liability's kind ("Proceeds from borrowing — 2100
+      Due to Members", 45-14(b)) and the operating outflow (its class by
+      rule 5) or the investing outflow (45-13(c)), both on the entry's
+      date. A member's capital credited against revenue or expense debited
+      paid for them likewise, a contribution ("Contributions from members
+      — <member>", 45-14(a)): the expense-to-capital case below.
+    - **Received for the company.** A financing liability or a member's
+      capital debited against revenue, expense or the receivables control
+      credited (a customer paying a member, a vendor refunding to a
+      member's card): an operating inflow, and a repayment or a
+      distribution (PwC 6.9.3.1: cash "received or paid").
+    - Each line's `on_behalf` is the part of its cash so handled. The parts
+      net to zero within the entry, so the sections still sum to the
+      change in cash (rule 9; Kani `constructive_nets_to_zero`). Kinds take
+      it in order, operating before investing and, within operating,
+      balance-sheet lines before revenue and expense (CONVENTION, as rule
+      3's: it matters only for an entry whose sources cover part of its
+      uses, and then leaves capital the revenue and expense it can pay
+      for). A reversal mirrors its root (rule 6; Kani
+      `constructive_mirrors`), so a payment and its reversal net out, and
+      a reimbursement is the repayment it is (45-15(b)).
+    - **Stays noncash**, disclosed (rule 7): property a member contributes
+      that it already owned (capital credited against an asset, a prepaid
+      included: no cash moved, to anyone, 50-4); property handed over in
+      kind (an asset credited against a financing liability or capital
+      debited); a debt exchanged for another or for equity (50-4's
+      "converting debt to equity"); interest and guaranteed payments
+      charged into what the company owes the lender or member (tax
+      categories `interest_expense`, `interest_income`,
+      `guaranteed_payments`: their own charges, accrued, paid to no one;
+      "interest paid", 45-25(e), is cash paid); and a purchase on the
+      seller's own credit, an operating payable (50-4, "acquiring assets by
+      assuming directly related liabilities"; EY 5.3.1), flagged
+      `asset_on_operating_payable` (rule 12).
+    - **An expense a member pays into capital** (Dr expense / Cr the
+      member's capital, no cash) is a constructive contribution and an
+      operating outflow. The member paid cash to a vendor for the company;
+      whether the company owes it back (Due to Members) or not (capital)
+      is only the form of the financing, not the substance of the payment,
+      which the guides follow ("the same economic result", DART 7.2). BDO
+      3.4 lists a parent paying a subsidiary's expenses among the cases
+      for constructive cash flows without asking how the subsidiary
+      records what it owes back (a parent's payment is often booked as a
+      contribution), and none of the guides read presents an expense
+      someone paid on the entity's behalf as noncash. The books' own K-1
+      worksheet already counts it as a cash contribution (`k1.rs`
+      INVARIANT 3, DECISION 2026-10-15), so the two agree.
+    - **Card purchases** follow the card's classification (D-35,
+      unchanged): on a card listed as financing, the issuer is a lender
+      that paid the merchant, so the purchase is borrowed and spent and the
+      card payment a repayment; on a card that is an operating payable, the
+      purchase is an accrual and its payment operating (d).
+    - *Limits* (the books can't tell who was paid). A lender's or member's
+      own charge credited to what the company owes them, other than
+      interest and guaranteed payments (a card's annual fee, rent a member
+      charges), reads as paid for the company: its operating outflow shows
+      when charged, its repayment as financing (each section's total over
+      the charge and its payment is right; the timing is the charge's).
+      Post what the company owes a member for their own goods or services
+      to a payable, not to the members' financing account. A note to the
+      seller listed in `books.financing_accounts` reads as a lender's loan
+      (borrowed and invested, where 50-4 makes it noncash): keep a seller's
+      note out of it (its principal payments then show as operating, where
+      45-13(c) makes them financing; flagged). An expense a member
+      contributes in kind (an item already owned, expensed at once) reads
+      as paid: post it to an asset first. A debt a member or a new lender
+      pays off directly is a noncash exchange (disclosed), where PwC
+      6.9.3.1 and BDO Example 3-6 would gross it up. Debt issue costs, a
+      financing outflow (45-15(f)), posted to an expense account read as
+      operating: post them to a contra-liability listed as financing, so a
+      fee the lender withholds is a noncash exchange inside financing and
+      the loan reads as its net proceeds. An entry that moves revenue or
+      expense straight to capital by hand, as a close does, reads as paid
+      or received for the company: close periods with `books.close_period`,
+      whose entries are never in the statement (rule 10).
+12. **Equipment paid for, or sold, later** (D-35; 45-12(c), 45-13(c)). A
+    bill payment carries its bill's split, equipment part first: the
+    payables line's equipment part is investing, so its payment is an
+    investing outflow, the reconciliation's payables change leaves it out,
+    and the purchase is disclosed only for what is unpaid at the period's
+    end (a payment reversed by then is unpaid again; EY FRD 5.3.3; DART
+    6.1.3; bills post to the general-expenses
+    control today, so this waits for bills with account lines). A card
+    purchase follows the card's classification: on an operating payable it
+    is disclosed and flagged (`asset_on_operating_payable`), on a financing
+    one it is borrowed and invested (rule 11) and its payment a repayment. A sale for an amount owed on an
+    operating receivable is disclosed and flagged with the fix
+    (`asset_sold_on_operating_receivable`: post it to an investing
+    account). The flags are the statement's `warnings`, and items in the
+    viewer's Needs attention. Limits: payments more than "soon after" purchase are
+    financing by 45-13(c) when the seller financed it, which the books
+    can't tell from a bill; unregistered equipment is operating (the asset
+    register's `unregistered_cost` flags it).
 
-**Enforced:** `profit_and_loss_for_period`, `cash_flow`. **Checked:** Lean
-`statements_add_up`; `prop_period_pnl_partitions`;
-`cash_flow_reconciles_to_change_in_cash`;
-`financing_is_gross_borrowing_apart_from_repayment`,
-`a_loan_the_entity_makes_is_investing_gross`,
-`an_expense_the_owner_paid_is_borrowing_then_operating`.
+Scope: single-currency books (R-5). A foreign-currency cash account's
+exchange effect would be a separate reconciling line (830-230-45-1); a
+hand-posted revaluation of a cash account shows as an operating receipt.
+
+**Enforced:** `profit_and_loss_for_period`; `cashflow::cash_flow` (with
+`kernel::entry_flows`, `apply_cash`, `constructive`, `exchanged`),
+`role_problems`, `foot`; `ledger_package::cash_flow_for` (the server, the
+package and the viewer). **Checked:** Lean `statements_add_up`,
+`cashflow_sections_sum_to_cash_change`, `entry_flows_sum`,
+`flows_reversal`, `constructive_nets`, `constructive_neg`,
+`constructive_sections_net`, `stmt_flows_sum`, `stmt_flows_reversal`,
+`operating_reconciliation_ties`, `cashflow_reversal_nets`,
+`Reachable.cashflow_foots`, `Reachable.cashflow_is_change_in_cash`; Kani
+`entry_flows_*`, `no_cash_no_flow`, `take_is_odd_and_bounded`,
+`apply_cash_mirrors`, `apply_cash_spends_exactly`,
+`exchanged_is_bounded`, `constructive_nets_to_zero`,
+`constructive_mirrors`; `prop_period_pnl_partitions`,
+`prop_cash_flow_laws` (5,000 cases, reversals of reversals, rule 11's
+shapes), `prop_pure_entries_sections_are_movements`; regressions
+`defect1_reversed_contributions_foot_regression`,
+`defect1_two_member_llc_first_year_regression`,
+`defect1_two_member_llc_as_of_march_18_regression` (and bookspec
+`cash-flow.*`, `cash-flow.paid-on-the-companys-behalf` for rule 11);
+`disposal_proceeds_all_investing`,
+`an_expense_a_member_paid_is_borrowed_and_spent`,
+`reimbursing_a_member_is_a_repayment_of_borrowing`,
+`equipment_a_lender_paid_for_is_borrowed_and_invested`,
+`an_expense_a_member_paid_into_capital_is_contributed_and_spent`,
+`property_a_member_contributes_stays_noncash`,
+`equipment_on_the_sellers_credit_stays_noncash_and_flagged`,
+`a_payment_made_for_the_company_and_its_reversal_net`,
+`part_paid_by_a_member_and_a_refund_a_member_received`,
+`a_lender_pays_balance_sheet_lines_first_and_a_customer_pays_a_member`,
+`interest_and_guaranteed_payments_charged_to_a_creditor_stay_noncash`,
+`a_fee_withheld_from_a_loan_follows_its_account`,
+`odd_shapes_foot_and_net`, `operating_classes_follow_asc_230_10_45_25`,
+`a_reversal_of_a_reversal_is_shown_and_foots`,
+`a_reversal_three_levels_down_is_labelled_a_reversal`,
+`operating_cash_is_classed_kind_by_kind`,
+`two_kinds_of_one_class_are_one_line`,
+`interest_paid_in_a_disposal_stays_operating`,
+`a_loss_on_disposal_on_a_revenue_or_expense_account_is_investing`,
+`an_investments_gain_is_investing`, `cash_goes_to_the_sections_in_order`,
+`cash_goes_to_a_sections_kinds_in_order`,
+`converting_member_debt_to_capital_is_disclosed`,
+`a_bill_payment_carries_its_bills_split`,
+`a_reversed_bill_payment_leaves_the_purchase_unpaid`, the role refusals,
+`foot_refuses_any_difference` (`crates/ledger-core/tests/spec_cash_flow.rs`).
 
 ## B-15 Depreciation: straight line, salvage never depreciated, partial months by days
 
@@ -491,10 +749,11 @@ Attorneys' gross proceeds stay at $600 (not modeled).
 
 What counts as paid: payments made in the calendar year (§6041(a)), so a
 prepayment counts when made. A worksheet as of a day (the CPA package's,
-B-33) counts the year's payments from January 1 through that day. The engine counts credits minus debits to the
-payment sources on a vendor's tagged entries: `[books] cash_accounts` and
-`financing_accounts` (a member or lender paying on the company's behalf;
-the company is still the payer). A card charge leaves neither (1099-K); a
+B-33) counts the year's payments from January 1 through that day. The
+engine counts credits minus debits to the payment sources on a vendor's
+tagged entries: `[books] cash_accounts` and `financing_accounts` (a
+member or lender paying on the company's behalf; the company is still the
+payer). A card charge leaves neither (1099-K); a
 bill is not paid until it is (`form1099::vendor_1099_report_with`,
 checked by `payments_come_from_cash_and_financing_only`). A W-9 is on
 file by the vendor's flag or its party's W-9 facts.
@@ -1067,7 +1326,8 @@ fixed asset register, mid-year and at year end; `as_of_package_iif_stops_at_as_o
 `iif_ties_to_the_trial_balance_as_of`, 2,000 cases); `ledger-mcp`
 `oracle_mcp.rs` (`cpa_package_holds_the_year_and_its_evidence`); the
 bookspec examples `bookspec/examples/as-of-package-stops-at-as-of.toml`
-and `bookspec/examples/1099-worksheet-through-as-of.toml`.
+and `bookspec/examples/1099-worksheet-through-as-of.toml` (`ledger-core`
+`tests/bookspec.rs`).
 
 ## B-34 The QuickBooks Desktop file (IIF): plain ASCII, every entry through as_of, closes left out
 

docs/spec/sources/fasb-asc.md

@@ -1,6 +1,7 @@
 # FASB Accounting Standards Codification: paragraphs read directly
 
-Read 2026-10-14 in the ASC's basic view (asc.fasb.org, the owner's login).
+Read 2026-10-14 in the ASC's basic view (asc.fasb.org, the owner's login),
+except the ASC 230 section added 2026-10-20, which says where it was read.
 The Codification is copyrighted by the Financial Accounting Foundation,
 so this file keeps only short quotes and paraphrase, with the paragraph
 numbers to look up. Earlier ASC paragraphs were read through Deloitte's
@@ -49,6 +50,197 @@ loans the entity makes are investing (45-12(a), 45-13(a)). Proceeds of
 → B-14: money owners advance (Due to Shareholders) is borrowing, so
 financing, gross; a loan the company makes is investing, gross.
 
+## ASC 230 for the direct method (rules.md B-14, P3 defect 1)
+
+Read 2026-10-20, not in the ASC basic view: DART's Codification pages
+need a login, and its public Roadmap on the statement of cash flows
+quotes only some of these paragraphs. So they were read where public
+sources reproduce the Codification's text: EY's Financial reporting
+developments guide "Statement of cash flows" (July 2026,
+https://www.ey.com/content/dam/ey-unified-site/ey-com/en-us/technical/accountinglink/documents/ey-frd42856-07-29-2026.pdf,
+which quotes ASC 230 and 830-230 in full; page numbers its own), the
+FASB's ASUs that last amended them (ASU 2016-15,
+https://storage.fasb.org/ASU%202016-15.pdf; ASU 2016-18,
+https://storage.fasb.org/ASU%202016-18.pdf), and Deloitte's public DART
+Roadmap where it quotes them
+(https://dart.deloitte.com/USDART/home/codification/presentation/asc230-10/roadmap-statement-cash-flow,
+no trailing slash: with one the page is "Tree node not found").
+Quotes are short; the rest is paraphrase.
+
+- **230-10-10-1** (EY p. 1): the statement's primary objective is "to
+  provide relevant information about the cash receipts and cash payments
+  of an entity during a period." → B-14 rule 1.
+- **230-10-45-1** (EY p. 1): the statement "shall report the cash effects
+  during a period of an entity's operations, its investing transactions,
+  and its financing transactions." (It says nothing of reconciling
+  beginning and ending cash: that is 45-24.)
+- **230-10-45-4** (EY p. 5): the statement explains the change in the
+  total of cash, cash equivalents and restricted cash. ASU 2016-18 struck
+  its old sentence on the totals at the beginning and end of the period
+  (gone from the current text). → rule 1: the cash accounts are all of
+  them. (50-7 and 50-8, EY pp. 5-6, 30: the nature of restrictions, and
+  the balance-sheet lines that hold the total when there are several.)
+- **230-10-45-5** (EY p. 5): purchases and sales of cash equivalents are
+  cash management, and transfers among cash, cash equivalents and
+  restricted cash "are not reported as cash flow activities". → rule 1: a
+  transfer between two cash accounts is no flow.
+- **230-10-45-12(c)** (EY p. 41; ASU 2016-15 p. 25): investing inflows
+  include "Receipts from sales of property, plant, and equipment and other
+  productive assets". → rule 4.
+- **230-10-45-13(c)** (EY p. 41; ASU 2016-15 p. 12): investing outflows
+  include payments "at the time of purchase or soon before or after
+  purchase" for PP&E; generally only those are investing, and incurring
+  debt directly to the seller is a financing transaction whose later
+  principal payments are financing. → rule 12 (the bill split), and the
+  limit B-14 records.
+- **230-10-45-14(a)** (EY p. 42): financing inflows include "Proceeds from
+  issuing equity instruments". **45-15(a)**: financing outflows include
+  "Payments of dividends or other distributions to owners"; **45-15(c)**:
+  most principal payments on seller-financed debt for PP&E are financing.
+  (45-14(b) and 45-15(b): above, read directly.)
+- **230-10-45-16(a), (b)** (EY p. 43): operating inflows include "Cash
+  receipts from sales of goods or services", including collections of
+  receivables from customers arising from those sales; and interest and
+  dividends received. 45-16(c): all other operating receipts. → rule 5,
+  rule 4's exception.
+- **230-10-45-17** (EY pp. 43-44): operating outflows: payments for goods
+  for resale (a), to "other suppliers and employees" (b), to governments
+  for taxes, duties, fines and other fees (c), interest to lenders and
+  other creditors (d), and others ((e), (ee), (f)). (Income taxes fall
+  under (c); 45-25 names them a class.)
+- **230-10-45-8, 45-9** (EY p. 12): only items whose "turnover is quick,
+  the amounts are large, and the maturities are short" (original maturity
+  "three months or less"; amounts due on demand count) may be reported
+  net, and even then need not be. **230-10-45-26** (EY p. 13): otherwise
+  investing and financing inflows and outflows are reported separately,
+  "proceeds of borrowings ... separately from repayments of debt". → rule
+  5: gross lines, members' advances and their repayments apart.
+- **230-10-45-24** (EY p. 15; ASU 2016-18 pp. 4-5): the statement reports
+  net cash from operating, investing and financing activities and "the
+  net effect of those flows" on cash, "in a manner that reconciles
+  beginning and ending totals". → rule 9, the footing.
+- **230-10-45-25** (EY p. 8; ASU 2016-15 p. 10): entities "are encouraged
+  to report major classes of gross cash receipts and gross cash payments";
+  those that do "shall, at a minimum, separately report" (a) cash
+  collected from customers, (b) interest and dividends received, (c) other
+  operating cash receipts, (d) cash paid to employees and other suppliers,
+  (e) interest paid, (f) income taxes paid, (g) other operating cash
+  payments. → rule 5, the operating classes; the direct method is a
+  choice the standard encourages, not one it requires.
+- **230-10-45-28** (EY p. 10; DART 3.1): the indirect method adjusts net
+  income to remove (a) deferrals and accruals of operating receipts and
+  payments, such as changes in receivables and payables, and (b) items
+  with no operating cash effect, including those "whose cash effects are
+  related to investing or financing cash flows, such as gains or losses on
+  sales of property, plant, and equipment". → rule 8's G and W.
+- **230-10-45-29** (EY p. 7; DART 3.1): the reconciliation of net income
+  to operating cash is required with either method; it "shall separately
+  report all major classes of reconciling items", at a minimum the
+  changes in operating receivables, inventory and payables.
+- **230-10-45-30** (EY p. 8; DART 3.1): with the direct method, that
+  reconciliation "shall be provided in a separate schedule." → rule 8.
+- **230-10-50-3** (EY p. 47): investing and financing activities that
+  "affect recognized assets or liabilities but that do not result in cash
+  receipts or cash payments in the period shall be disclosed", narrative
+  or in a schedule. → rule 7.
+- **230-10-50-4** (EY p. 47): its examples, among them: "converting debt to equity";
+  acquiring assets by assuming directly related liabilities; obtaining a
+  right-of-use asset for a lease liability (the old "capital lease"
+  wording, replaced); receiving a gift of an asset; exchanging noncash
+  assets or liabilities for others (also a beneficial interest obtained
+  in a securitization, not listed here). → rule 7's exchange inside one
+  section.
+- **230-10-50-5** (EY p. 47): "Some transactions are part cash and part
+  noncash; only the cash portion shall be reported in the statement of
+  cash flows." → rule 3.
+- **230-10-50-6** (EY p. 47): with only a few noncash transactions, they
+  may be on the same page as the statement; otherwise elsewhere, clearly
+  referenced to it. → the printed statement's noncash schedule.
+- **830-230-45-1** (EY p. 81; DART 7.1): the effect of exchange-rate
+  changes on cash held in foreign currencies is reported as a separate
+  part of the reconciliation of the change in cash. → B-14's scope note
+  (single-currency books, R-5).
+- **105-10-05-1, 05-2, 05-3** (read only in their 2009 text, ASU 2009-01
+  Appendix B, pp. 17-18, https://storage.fasb.org/ASU2009-01.pdf; the
+  current wording is not confirmed): the Codification is "the source of
+  authoritative generally accepted accounting principles"; where it does
+  not specify, an entity first considers principles for similar
+  transactions "and then consider[s] nonauthoritative guidance from other
+  sources"; practices not in the Codification are nonauthoritative
+  (sources include accounting textbooks, handbooks and articles). → rule
+  11: the Codification does not address payments made on the entity's
+  behalf (below), so this is where firm guidance comes in; rule 11
+  follows it (D-42), a choice the standard leaves open, not a requirement
+  of any paragraph.
+
+Also read there, for the design (not authoritative, 105-10-05-3):
+
+- DART 6.1.3 and EY 5.3.1 and 5.3.3 (equipment on account: payments soon
+  after purchase are investing, "soon" read by the SEC staff as three
+  months or less; the change in payables in the reconciliation leaves
+  out payables for investing; the noncash disclosure is the liability
+  that remains unpaid at the period's end). → rule 12.
+- Payments a third party makes, or cash it receives, on the entity's
+  behalf (rule 11, D-42). No ASC paragraph addresses them: PwC Viewpoint,
+  Financial statement presentation 6.9.3 ("ASC 230 does not address these
+  situations"); KPMG Handbook, Statement of cash flows (March 2026)
+  Q8.3.10 ("Topic 230 does not directly address"); BDO Blueprint,
+  Statement of cash flows under ASC 230 (December 2025) 3.4 ("While ASC 230
+  is silent"); EY 4.6.2 ("we believe judgment will be needed"). Read
+  2026-10-20 for D-42, in each firm's public text (PwC
+  https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/financial_statement_/financial_statement___18_US/chapter_6_statement__US/69_supplementary_cash.html;
+  DART https://dart.deloitte.com/USDART/home/codification/presentation/asc230-10/roadmap-statement-cash-flow/chapter-7-common-issues-related-cash/7-2-constructive-receipt-disbursement;
+  BDO https://arch.bdo.com/Statement-of-Cash-Flows-Under-ASC-230; EY as
+  above):
+  - **PwC 6.9.3.1** (Constructive receipts and disbursements): "a reporting
+    entity should include cash flows received or paid by a third party on
+    behalf of the reporting entity", as though through its own accounts.
+    Its examples: a transfer agent moving a new lender's proceeds to pay
+    off the old lender (gross up both), and a bank paying a vendor at the
+    entity's instruction ("a financing inflow for the receipt of the debt
+    proceeds", and an operating outflow for the vendor). "Judgment is
+    required."
+  - **DART Roadmap 7.2** (Constructive receipt and disbursement): when a
+    third party handles cash on the entity's behalf, the entity may have
+    constructive receipt or disbursement, because "the same economic
+    result would be achieved if the cash had been received by or disbursed
+    to" it directly. Inventory financed by an unrelated lender that pays
+    the supplier: a financing inflow and an operating outflow, repayments
+    financing; a mortgage lender wiring the seller: a financing inflow and
+    an investing outflow; Example 7-2, a lender paying an insurance
+    premium: an operating outflow for the premium and a financing inflow.
+    The contrast is a supplier's own finance subsidiary (AICPA Technical
+    Q&A 1300.16, and the SEC staff at the 2005 AICPA conference): a trade
+    loan, noncash.
+  - **BDO 3.4** (Constructive disbursements and receipts): among its cases,
+    "A parent might pay on behalf of a subsidiary expenses that are
+    recognized in the subsidiary's separate financial statements"; an
+    entity "generally should report constructive cash flows when it
+    contracts with a third party to act on its behalf (for example, a
+    transfer agent, investment bank, or lender) or when cash does not flow
+    through the entity's cash accounts for administrative convenience".
+    Example 3-5: a bank remitting the price of equipment to the supplier,
+    an investing outflow and a financing inflow, later principal payments
+    financing (citing TQA 1300.19); Example 3-6: a refinancing through an
+    agent, a financing inflow and outflow; Example 3-4: the supplier's own
+    finance subsidiary, noncash (TQA 1300.16).
+  - **EY 5.2.4 and 5.3.1**: inventory or equipment financed by a third
+    party (not the seller) is an operating or investing outflow and a
+    financing inflow; seller-financed purchases are noncash "to the extent
+    of the initial seller financing", disclosed under 50-3 to 50-6, and
+    later principal payments are financing whichever financed them.
+  - **KPMG Q8.3.10** accepts a noncash presentation (citing 50-3) for
+    property and equipment a lender pays for.
+
+  → rule 11 (D-42): constructive receipt and disbursement for what a
+  member (through the members' financing account, or capital for an
+  expense) or a lender pays or receives for the company; noncash for
+  property a member already owned (50-4) and for the seller's own credit
+  (EY 5.3.1). The expense-to-capital case follows BDO 3.4's parent paying
+  a subsidiary's expenses, and the substance test of DART 7.2 and PwC
+  6.9.3.1, which turn on who paid whom, not on how the entity records
+  what it owes back.
+
 ## 606-10-55-36 through 55-38 (Revenue: principal or agent)
 
 An entity controlling the specified good or service before transfer is

docs/testing.md

@@ -23,7 +23,7 @@ promise.
 | Model-based stateful | the Lean state machine, transcribed (3) | `tests/model.rs` | `just check` | ~3s | every change |
 | Differential: Decimal vs i64 | the kernel at two types (3) | `kernel_bridge.rs` | `just check` | <1s | every change |
 | Differential: GnuCash | another implementation, adjudicated (3) | `tests/oracle_gnucash.rs`, `oracle/gnucash/` | `just oracle` | ~2 min | weekly |
-| Formal proofs | Kani (bounded) and Lean (unbounded) | `src/proofs.rs`, `verify/lean/` | `just prove` | ~3 min | weekly |
+| Formal proofs | Kani (bounded) and Lean (unbounded) | `src/proofs.rs`, `verify/lean/` | `just prove` | ~15-20 min (bounded by `entry_flows_of_a_reversal_mirror`, ~14 min; all 29 harnesses ~43 min of CPU, run in parallel) | weekly |
 | Fuzzing | crash, hang, broken books (4); for `fuzz_store_replay` (validly chained journals with fuzz-chosen events): books that open must verify, and the viewer must accept exactly what the writer does | `fuzz/fuzz_targets/`, corpora in `fuzz/corpus/` | `just fuzz <target> <secs>` | 10 min each | weekly |
 | Miri | undefined behavior in our use of dependencies (4) | the core's unit, bridge, invariant tests | `just miri` | ~2 min | on demand |
 | Golden | `tests/golden/fixture_company.json` (5) | `invariants.rs` | `just check` | <1s | every change |
@@ -606,7 +606,9 @@ worked by hand in the test's comment.
 anonymized, with a close to retained earnings between two members closes.
 The run rule left A −399.24 / B −399.22; the rule since P3 gives −399.23
 each (March: Dr 3000 199.61, Dr 3001 199.62). Its bookspec example is
-`bookspec/examples/members-close.odd-cent-across-closes.toml`.
+`bookspec/examples/members-close.odd-cent-across-closes.toml`; it and the
+other `members-close.*` examples are checked with every example by
+`ledger-core` `tests/bookspec.rs` (`every_bookspec_example_holds`).
 
 **Core** (`ledger-core` `tests/odd_cent.rs`): a true-up from inception
 (`members_closes_true_up_from_inception`); a close that posts nothing
@@ -763,7 +765,17 @@ fixtures:
   ones (`bookspec/examples/as-of-package-stops-at-as-of.toml`,
   `1099-worksheet-through-as-of.toml`) and the IIF's
   (`iif-quickbooks-journal-file.toml`, formats appendix), each expected
-  value derived by hand; `the_bookspec_iif_example_matches_the_engine`
+  value derived by hand. `ledger-core` `tests/bookspec.rs` loads every
+  example, the formats appendix's too, and checks the as-of ones' trial
+  balances, profits and losses and 1099 payments against the engine
+  (`every_bookspec_example_holds`, the one loader of every example; the
+  tests beside it refuse a query no crate answers, a format query outside
+  the formats appendix, an unknown appendix, a payee not in the setup, a
+  figure query leaving out an account, payee or entry line it covers, an
+  as-of query given a period, `after` past the last event, members'
+  shares not summing to 1 and a members close declared with another
+  rounding, and show `after` asks the books after that event);
+  `the_bookspec_iif_example_matches_the_engine`
   reads the IIF example and checks the engine gives exactly its file and
   changes.
 - Review R18 and the README: `one_list_of_cash_accounts_per_package`,
@@ -895,6 +907,149 @@ condition and `receivable_payable`; `fonts.rs` and `theme.rs`
 `parties.rs` `tin_separator`'s arms and `tin_invisible`, and the gap that
 doesn't count them.
 
+## P3: cash flow (defect 1, 2026-10-20)
+
+The statement of cash flows was rebuilt by the direct method (rules.md
+B-14, D-35), and what a member or a lender pays for the company shown as
+cash borrowed and spent (D-42, rule 11). Built, reviewed twice, `just
+check` and `just prove`; no mutation run (D-33): what P12 must cover is at
+the end.
+
+- **Named regressions** (`crates/ledger-core/tests/spec_cash_flow.rs`;
+  also bookspec examples, `bookspec/examples/cash-flow.*.toml`, checked by
+  `tests/bookspec.rs` on every run):
+  `defect1_reversed_contributions_foot_regression` (the minimal
+  reproduction: a property contribution reversed, which broke footing by
+  the contribution's amount), `defect1_two_member_llc_first_year_regression`
+  and `defect1_two_member_llc_as_of_march_18_regression` (a replica of
+  the 23 entries defect 1 was found in: the same shape, order, accounts
+  and roles, Member A and B and generic vendors, every amount and date
+  made up, so none is the real books'; to 2026-03-31, operating -596.24,
+  investing 0.00, financing +2,216.40, the change in cash +1,620.16, and
+  to 2026-03-18, operating -549.86, financing +2,549.86, worked by hand
+  in the test's doc comment).
+- **The rule, case by case** (same file; each oracle worked by hand from
+  its paragraph in the test's doc comment): disposals at a gain, a loss
+  and before any depreciation (`disposal_proceeds_all_investing`); a sale
+  on an IOU (disclosed, flagged, with the fix); property contributed;
+  what a member or lender pays or receives for the company (D-42, rule
+  11): an expense through Due to Members, equipment a bank paid for, an
+  expense paid into capital, a financing card, part cash and part a
+  member's, a refund to a member, a customer paying a member, a payment
+  made for the company and its reversal (in the period and alone, a
+  prepaid and equipment too), the reimbursement, the uses' order (rule
+  11's convention); and what stays noncash: property a member owned (with
+  members configured and without), the seller's credit (flagged), interest
+  and guaranteed payments charged to a creditor, a fee withheld on a
+  contra-liability. From the second review: odd shapes (two cash accounts
+  in one entry, one account on both sides, a reversal chain across the
+  period start, a close: `odd_shapes_foot_and_net`) and taxes and
+  government fees as other payments, (g); reversals in the
+  period, alone, taking their root's sections and class, and reversals of
+  reversals (review item 1); part cash (50-5); a fee withheld from a loan;
+  interest with principal, paid and received; one entry per operating
+  class (a)-(g); depreciation; cash spent on a depreciation expense account
+  (D1-e); the reconciliation tying to operating; closes; the start date;
+  transfers between cash accounts; debt converted to capital, a note
+  received for equipment, a trade-in (review item 2); the bill split
+  (D-35, through a bill restored as a later version would journal it),
+  and a bill payment reversed in the period; a card purchase of
+  equipment, on an operating and a financing card; each member's kinds;
+  the five role refusals and `foot` directly. From the P3 review: interest
+  classed apart from the rest of an entry's operating cash
+  (`operating_cash_is_classed_kind_by_kind`) and kept operating in a
+  disposal; a loss on disposal on a revenue-typed or an expense-typed
+  account; an investment sold at a gain; a reversal three levels down;
+  and both of rule 3's conventions pinned (the sections' order, the kinds'
+  order).
+- **Properties, 5,000 cases each** (`CF_CASES`, default 5,000, about 16 s):
+  `prop_cash_flow_laws` over random books of 33 templates (every shape
+  the rule names, rule 11's included) and reversals of any earlier entry,
+  reversals included: the sections are the change in cash and the
+  model's; each section is its lines and kinds; the reconciliation is
+  operating; an entry's lines are its cash, what was handled for it
+  netting to zero, each line's cash part with the entry's sign; every
+  disclosure is its parts' positive sum or its exchange; an entry and its
+  reversal in the period change nothing; periods split and add; closing
+  every month changes nothing; scaling scales every figure.
+  `prop_pure_entries_sections_are_movements`: for pure entries, each
+  section is minus its accounts' movement over the entries that touch
+  cash or that a member or lender settled whole for the company (the
+  plan's wording, with rule 11 modelled apart from the engine; review
+  item 7's definition of pure). The older properties in `spec_reports.rs`
+  are kept with new oracles (financing is the cash part of equity and
+  designated debt plus what the loan or capital paid or received for the
+  company, by an independent model of rules 3 and 11).
+- **Bridge:** `entry_flows_agree`, `apply_cash_and_exchanged_agree`,
+  `constructive_agrees`.
+- **Proofs:** Kani `entry_flows_sum_to_cash`,
+  `entry_flows_pure_are_movements`, `entry_flows_are_bounded`,
+  `entry_flows_of_a_reversal_mirror`, `no_cash_no_flow` (entries of up to
+  three lines), `take_is_odd_and_bounded`, `apply_cash_mirrors`,
+  `apply_cash_spends_exactly`, `exchanged_is_bounded`,
+  `constructive_nets_to_zero`, `constructive_mirrors`; Lean
+  `cashflow_sections_sum_to_cash_change`, `entry_flows_sum`,
+  `flows_reversal`, `constructive_nets`, `constructive_neg`,
+  `constructive_sections_net`, `stmt_flows_sum`, `stmt_flows_reversal`,
+  `operating_reconciliation_ties(_all)`, `cashflow_reversal_nets`,
+  `Reachable.cashflow_foots`, `Reachable.cashflow_is_change_in_cash`
+  (docs/verification.md, law 10).
+- **Sensitivity (P3 review, by hand, no mutation run):** 18 deliberate
+  breaks to `cashflow.rs` and `kernel.rs` (a dropped reversal
+  flip, no netting, financing read as operating, no rule 4, no exchange
+  disclosure, no interest class, no warnings, the bill's payments
+  ignored, the label's depth parity, repeated codes allowed, depreciation
+  disclosed, the sections' or kinds' order reversed, the customer party
+  ignored, accumulated depreciation in the exchange, the interest
+  exception dropped, rule 4 for investing accounts): 17 fail a test (4
+  of them only since the review's tests); one is equivalent today
+  (`mirrors` ignoring amounts: every reversal mirrors its original until
+  P4's drafts).
+- **Sensitivity, second round (after D-42, by hand, no mutation run):**
+  17 breaks to rule 11 and the kernel's `constructive` (no lender pass, no
+  member pass, no receipts for the company, a reversal not mirrored, a
+  lender paying for no investing, capital paying for property, receipts
+  for property, receivables not received, guaranteed payments or
+  interest paid for, `on_behalf` not reported, the exchange on the net
+  flow, owners' equity read as a lender, pairing that ignores
+  `on_behalf`, the kernel's received sign, `max` for `min`, the uses'
+  order reversed): 16 fail a test; one is equivalent today (pairing that
+  ignores `on_behalf`: a mirrored reversal's real and constructive parts
+  are each proved to mirror, Kani `entry_flows_of_a_reversal_mirror` and
+  `constructive_mirrors`, so the check is defensive, for P4's drafts).
+  The first round's 18 breaks, re-run on the reworked code (four
+  adapted where the code moved), and one more for the taxes class: 18
+  fail a test, `mirrors` ignoring amounts still the one equivalent.
+- **End to end:** the printed statement's footing, schedules and rows as
+  the engine's (`cash_flow_foots_and_reconciles`,
+  `cash_flow_adjustments_appear_only_when_there_are_some`, ledger-import);
+  the CPA package's statement with both schedules
+  (`the_cash_flow_carries_both_schedules`); the MCP tool and its exports
+  field for field against the core (`cash_flow_exports_equal_the_core_statement`),
+  the CSV's warnings, the settings' roles and a member-paid expense over stdio
+  (`cash_flow_reads_its_account_roles_from_the_books_settings`), refusals
+  naming the setting (`cash_flow_refuses_contradictory_roles`), the
+  settings' problems from the same check; the viewer's statement as the
+  server's, a loan the setting leaves out operating in both, a refusal
+  shown as a reason and no number, and the page painted
+  (`the_cash_flow_page_is_the_servers_statement`,
+  `a_refused_cash_flow_shows_why_and_no_number`,
+  `the_cash_flow_page_paints_its_schedules`; with `SHOT_DIR`, a PNG); the
+  statement's warnings as Needs attention items
+  (`cash_flow_warnings_are_items`);
+  every old-books fixture's statement computed or refused, never an
+  engine error (`every_figure_over_old_books_is_computed_or_refused`).
+
+**For P12** (D-33): `cargo mutants` on `ledger-core`'s `cashflow.rs`
+(`cash_flow`, `analyse`, `pairs`, `label`, `class_of`, `reconcile`,
+`warnings`, `bill_splits`, `role_problems`, `foot`, `on_behalf`) and
+`kernel.rs`'s `take`, `apply_cash`, `entry_flows`, `constructive`,
+`exchanged`; `ledger-import`'s
+`report::cash_flow`; `ledger-mcp`'s `cash_flow_out`, `cash_flow_csv`,
+`export_cash_flow` and `settings_problems`; zero unexplained survivors
+(plan P3 accept). Likely equivalent, to adjudicate: `min` against `max`
+in `take` where both bounds coincide, and the kind order's tie-breaks.
+
 ## Benchmarks (baseline 2026-10-13)
 
 No budget, by decision (the owner, 2026-10-13: the books do little work
@@ -940,6 +1095,7 @@ accounting question), CHANGE (a source says otherwise; work pending).
 | 6 | Reconciliation balances | CONFIRMED | Signed by the account's normal side (a card reads as owed), as statements show it; `reconciling_a_card_reads_its_normal_side_...` |
 | 7 | A member's ending on one equity statement may differ by a cent from the next statement's beginning | CHANGED 2026-10-13; CHANGED P3 | A capital account is one running balance (Treas. Reg. §1.704-1(b)(2)(iv)(b); the Item L quote this row once gave was misread, P3 review R-4). Undistributed earnings now split cumulatively as of each date, so each member's capital chains exactly (`each_members_capital_chains_across_statements`; it fails on the old code); since P3 the split is what the count's next close would give, so a date's capital never moves when its month is closed (D-38; `each_members_capital_chains_and_holds_through_closes`); rules.md B-13 |
 | 8 | Cash flow nets one line per account; investing comes only from registered assets | CHANGED 2026-10-13 | ASC 230-10-45-7: gross receipts and payments "more relevant" than net; 45-8 limits netting to quick-turnover items. Financing and investing are now gross; loans made and investments bought are investing (230-10-20, 45-13) via `[books] investing_accounts`. Owner-advanced expenses: PwC 6.9.3.1 constructive treatment via `[books] financing_accounts` (rules.md B-14) |
+| 8a | Cash flow by the indirect method; member-paid expenses as constructive receipts | CHANGED 2026-10-20 | The direct method with the reconciliation as a separate schedule (ASC 230-10-45-25, 45-30); noncash investing and financing activities disclosed, only the cash portion reported (50-3, 50-5). Member-paid expenses stay constructive receipts and disbursements, now gross and on each payment's date, and the same for a lender's payments and an expense paid into capital: a choice (D-42, after a day as noncash under D-35), since ASC 230 doesn't address payments made on the entity's behalf and the firm guides present them so (PwC 6.9.3.1, DART 7.2, BDO 3.4, EY 4.6.2; KPMG Q8.3.10 also accepts noncash for property a lender pays for). rules.md B-14 rule 11, P3 defect 1 |
 | 9 | An asset's life ends at purchase + life months, that day not held; day-count proration | CONVENTION | Exactly N months of service; day proration and the mid-month convention are both accepted book policies (ASC 360-10-35-4, read 2026-10-14: any systematic and rational allocation) |
 | 10 | A payroll entry has one line per account total | CONFIRMED | The per-employee detail the IRS requires ("Amounts and dates of all wage ... payments", Employment Tax Recordkeeping) is kept in the run; a summary entry is standard |
 | 11 | A period with exactly the dates of an existing one is allowed | DESIGN | Nothing governs duplicate periods; harmless (the second close locks only). Refusing exact duplicates is an option |

docs/verification.md

@@ -83,6 +83,58 @@ Each law, and what proves it. Kani harnesses are in
      `Reachable.accounting_equation_through` (any number of accounts)
 9. **Period statements add up**: a year's P&L is the sum of its months'.
    - Lean `statements_add_up`
+10. **The statement of cash flows foots** (rules.md B-14, plan P3 defect
+    1): each entry's cash is applied to the sections moving against it,
+    operating, investing, financing, each up to its own movement; what a
+    member or a lender paid or received for the entry, with no cash
+    account moving (rule 11, D-42), is added as a constructive receipt
+    and disbursement that nets to zero within the entry; so each entry's
+    flows sum to its cash and what neither settled sums to zero, and
+    operating + investing + financing is exactly the change in the cash
+    accounts, over any entries, for any tagging whose cash tag follows
+    the account. A reversal's flows, constructive ones included, are its
+    original's negated (so an entry and its reversal in one period drop
+    out together), and net income plus the reconciling items (gains and
+    losses on investing assets, the noncash operating parts, the changes
+    in operating balances) is the operating section, whenever revenue and
+    expense lines are only operating or investing. The engine checks the
+    same identities at runtime and refuses (`CashFlowDoesNotFoot`) rather
+    than show a statement that doesn't foot.
+    - Kani `entry_flows_sum_to_cash`, `entry_flows_pure_are_movements`,
+      `entry_flows_are_bounded`, `entry_flows_of_a_reversal_mirror`,
+      `no_cash_no_flow` (end to end on entries of up to three lines, each
+      in any of the four places: four lines ran past half an hour per
+      harness; at three, the reversal's mirror is the slowest harness in
+      the suite, about 14 minutes on the development laptop, the others
+      seconds to 6 minutes), `take_is_odd_and_bounded`, `apply_cash_mirrors` (the
+      parts, for any amounts), `apply_cash_spends_exactly` (how a
+      section's cash splits among its kinds, operating's classes
+      included), `exchanged_is_bounded` (the
+      exchange inside investing and financing that is disclosed, given
+      the cash in and out of the two sections),
+      `constructive_nets_to_zero` and `constructive_mirrors` (what a
+      member or lender paid or received for the company, either way, for
+      any amounts: the parts net to zero, settle their own movements
+      toward zero and no further, leave no source beside a use it could
+      settle, and mirror under a reversal)
+    - Lean `net_splits_by_flow`, `applyCash_conserves`,
+      `applyCash_exhausts`, `applyCash_neg`, `entry_flows_sum`,
+      `flows_reversal`, `constructive_nets`, `constructive_neg`,
+      `constructive_sections_net` (the kernel's `constructive` modelled as
+      it is written: two passes of `applyCash`; its parts by section net
+      to zero), `stmt_flows_sum`, `stmt_flows_reversal` (an entry's
+      statement flows, its cash flows plus any constructive triple that
+      nets to zero, and mirrors for a reversal), and over them
+      `cashflow_sections_sum_to_cash_change`,
+      `secNet_cash_is_movement`, `operating_reconciliation_ties`,
+      `operating_reconciliation_ties_all`, `cashflow_reversal_nets`;
+      `Reachable.cashflow_foots` and `Reachable.cashflow_is_change_in_cash`
+      (in every reachable state: the sections over the entries between two
+      days are the cash accounts' ending balance less their beginning)
+    - bridge `entry_flows_agree`, `apply_cash_and_exchanged_agree`,
+      `constructive_agrees`;
+      properties `prop_cash_flow_laws`,
+      `prop_pure_entries_sections_are_movements` (5,000 cases each)
 
 ### The books over time
 
@@ -94,21 +146,21 @@ Each step carries the checks the engine makes before it mutates. These
 theorems hold in **every state reachable from empty books, by any
 sequence of commands, of any length**:
 
-10. **The invariant holds**: chart codes are unique, every posted entry is
+11. **The invariant holds**: chart codes are unique, every posted entry is
     acceptable and on known accounts, and no draft is dated in a closed
     period. (That last one is why the store can journal a post before
     applying it: a post can never then fail on a closed period.)
     - Lean `Step.inv`, `Reachable.inv`
-11. **The books always net to zero.** · Lean `Reachable.books_net_zero`
-12. **Posted is forever**: posting only appends. After any sequence of
+12. **The books always net to zero.** · Lean `Reachable.books_net_zero`
+13. **Posted is forever**: posting only appends. After any sequence of
     commands the old log is a prefix of the new one. Nothing is edited,
     reordered, or removed.
     - Lean `Step.extends`, `Steps.extends`
-13. **Closed periods are frozen**: once a period is closed, no sequence of
+14. **Closed periods are frozen**: once a period is closed, no sequence of
     commands adds, removes, or changes an entry dated in it, and it stays
     closed.
     - Lean `Step.frozen`, `Steps.frozen`
-13a. **How the books are kept changes no entry**: in the model, a record
+14a. **How the books are kept changes no entry**: in the model, a record
     (a setting, convention, decision, open item or approval) leaves the
     chart, every posted entry, every draft and every period exactly as they
     were, and any number of them keeps a reachable state reachable. The
@@ -123,7 +175,7 @@ sequence of commands, of any length**:
 
 ### Closing
 
-14. **A closing line zeroes its account**, and **a closing entry balances
+15. **A closing line zeroes its account**, and **a closing entry balances
     and zeroes every revenue and expense account** through the period's
     last day, whether the net goes to one account or is split among
     members.
@@ -131,14 +183,14 @@ sequence of commands, of any length**:
       `closing_entry_balances`
     - Lean `closingEntry_net`, `closingEntry_zeroes`,
       `closingEntry_accepted`, `close_zeroes`
-15. **A close credits equity with exactly the net income**: revenue minus
+16. **A close credits equity with exactly the net income**: revenue minus
     expenses through the period's last day.
     - Lean `net_closings_is_net_income`, `close_credits_net_income`
-16. **An allocation's parts sum to the whole, to the unit**, however the
+17. **An allocation's parts sum to the whole, to the unit**, however the
     other shares were rounded, and only the last share changes.
     - Kani `plug_last_sums_exactly` · Lean `plugLast_total`,
       `plugLast_keeps`
-17. **A run of member closes telescopes**: each member's total from a run
+18. **A run of member closes telescopes**: each member's total from a run
     of cumulative closes is their allocation of everything the run closed
     (so its rounding is one allocation's, never a sum of them), and each
     close hands out exactly its net, for any allocation whose parts sum to
@@ -249,7 +301,10 @@ can also prove false claims. So:
 - **The proofs are not vacuous.** `kani::cover!` statements make Kani
   show that the interesting cases are reachable: an accepted four-line
   entry, a reversal on one account with several lines, three distinct
-  accounts, a balanced three-account chart, a close to two members. `just prove` fails if any cover is unsatisfiable.
+  accounts, a balanced three-account chart, a close to two members, a
+  part-cash part-noncash investing entry, cash settling two sections at
+  once, a mixed entry reversed, property contributed for capital. `just
+  prove` fails if any cover is unsatisfiable.
 
 ## What is and isn't proved
 
@@ -257,7 +312,8 @@ Be precise about the claims:
 
 - **Kani is bounded.** It proves the kernel for every input up to 4 lines
   over 3 accounts and amounts to 2^40 units (the accounting equation end
-  to end: up to 3 accounts). Lean proves the laws for any
+  to end: up to 3 accounts; the cash flow entry harnesses: up to 3 lines,
+  each tagged any of 4 ways). Lean proves the laws for any
   size, but of a *model*. The model is a direct restatement of the kernel,
   and the bridge property test ties the `Decimal` instantiation to the
   `i64` one Kani checked.
@@ -276,6 +332,24 @@ Be precise about the claims:
   structurally), A/R and A/P documents, payroll, depreciation schedules
   (those have their own property tests), and persistence (the journal
   store's hash chain is tested in `ledger-store`).
+- **The cash flow model tags lines per entry with any function** meeting
+  the engine's guarantees (the cash tag follows the account; revenue and
+  expense lines are operating or investing; a reversal takes its
+  original's tags); which tag the engine picks for a line (rule 4's
+  disposals, the bill split, the chain root) is checked by the property
+  and example tests, not proved. A line the engine splits between two
+  sections is two lines in the model, the entry's net unchanged.
+- **Closing entries and the cash balance.** The engine leaves closing
+  entries out of the sections but not out of the cash accounts'
+  balances; the two agree because a close moves only revenue, expense
+  and equity (`Ledger::validate_close_to`) and cash accounts must be
+  assets (rules.md B-14 rule 2). The Lean model's close step lets a
+  target be any balance-sheet account, so `Reachable.cashflow_foots`
+  takes any selection of entries with the cash over the same selection,
+  and `Reachable.cashflow_is_change_in_cash` counts every entry, closes
+  included. That a close never moves cash is checked by tests
+  (`closing_entries_never_appear`, `prop_cash_flow_laws` law 7), not
+  proved.
 
 ### P0 guard rails (2026-10-16)
 
@@ -324,8 +398,15 @@ mise install   # once: Kani, Lean, and the rest, pinned in mise.toml
 just prove
 ```
 
-`just prove` runs every Kani harness, builds the Lean proofs (seconds),
+`just prove` runs every Kani harness, in parallel (`-j $(nproc)`, under
+a 30-minute timeout), builds the Lean proofs (seconds),
 and fails if any headline theorem depends on anything beyond Lean's
 standard axioms (`propext`, `Quot.sound`, `Classical.choice`). In
-particular, `sorryAx` fails it. Kani downloads its pinned nightly and
-CBMC into `~/.kani` on first use.
+particular, `sorryAx` fails it. Its time is the slowest harness's:
+`entry_flows_of_a_reversal_mirror`, about 14 minutes on the development
+laptop (8 cores); the 20 harnesses before P3 take about 17 minutes of
+CPU in all (`accounting_equation` the longest, about 4), the cash flow's
+other ten about 17 (`constructive_mirrors` about 2.5 minutes,
+`constructive_nets_to_zero` about 1.5), so the whole run is about 15 to
+20 minutes. Kani
+downloads its pinned nightly and CBMC into `~/.kani` on first use.