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fix(cash flow): a payment to a government is other operating, by its payee

The P3 cutover review's open point 2: a state's LLC filing fee, booked
to an organization-costs account (tax category organization_startup),
read as "Cash paid to suppliers and employees". B-14 rule 5 sent a
payment to class (g) only when every operating line's account was
taxes_licenses, so the account, not the payee, decided.

ASC 230-10-45-17, read in EY's guide that reproduces it (Statement of
cash flows, July 2026, p. 43; the PDF re-fetched and its SHA-256
recorded in docs/spec/sources/fasb-asc.md), lists apart "(b) Cash
payments to other suppliers and employees for other goods or services"
and "(c) Cash payments to governments for taxes, duties, fines, and
other fees or penalties". 45-25's classes name only income taxes (f)
among the latter, so the rest are (g), other operating cash payments.
A formation filing fee is rightly an organization cost (its account and
tax line), and still a payment to a government: the payee is what
45-17(c) is about.

So rule 5 now sends a payment's government part to (g): of an
operating payment the structure classes (d), what went to a party with
the government_agency or tax_agency role (the chain root's parties, so
a reversal keeps its original's class) is (g), on any account; and, as
before, a payment whose every operating line is on a taxes_licenses
account is (g). Every party a government: the whole payment. A
government and a supplier named together: the payment is split by their
resolved shares (B-35), the government's part (g), the rest (d), since
ASC 230-10-45-22 has "each separately identifiable source or each
separately identifiable use" classed "on the basis of the nature of the
underlying cash flows" (EY p. 44; quoted in fasb-asc.md; it names the
three activities, read for 45-25's classes too as a CONVENTION). The
government's part is the payment x its share / the whole, rounded half
to even to the base currency's places, the rest exact, so the line still
sums to the payment and a reversal mirrors it. Shares that don't
resolve leave the whole payment (d). One naming no party is decided by
its accounts. Receipts are untouched (a refund from a government stays
(c)). No total changes, only which operating row a payment is in.

Two limits, from the review of this change: a government selling goods
or services (postage) is 45-17(b)'s supplier "for other goods or
services", so the rule says, and the handbook tells the agent, to add
such a payee as a vendor, never with the government_agency role (the
books can't tell what a payment bought; the role says it). And payroll
keeps its structure (CONVENTION): an entry with a line on the salary
expense or a payroll payable control account, or on a pay tax category
(salaries_wages, officer_compensation, employee_benefits,
pension_profit_sharing), stays (d) whoever it names: withheld taxes
remitted are the employees' pay, and the payables mix them with the
employer's taxes, which a remittance can't tell apart. So a remittance
to the IRS is (d) as it was before this change; the employer's payroll
tax paid on its own expense account is a tax, (g).

The first company's books have this case: their state filing fee moves
from "Cash paid to suppliers and employees" to "Other operating cash
payments" at every date once its entry names the state's agency with the
government_agency role and its own entry is the one whose cash the
statement lists (paid from the bank, or on a card that is a lender's
credit, D-42, or by a member through the members' account while it is
a financing account, B-14 rule 11, the way that fee was paid);
charged to an operating-payable card, its cash leaves in the card
payment, whose payee is the bank, and it stays with suppliers.
STATUS says how to check both, and that the cutover goldens' cash-flow
snapshots will differ on the two class lines only (totals the same),
so the next cutover diff isn't read as a regression.

Docs: rules.md B-14 rule 5 (the rule, its source quoted, the date and
what it was before); fasb-asc.md (45-17(b) and (c) quoted exactly, with
the guide's SHA-256); the handbook's entries section (name the agency as
the party on a tax, fee, fine or penalty paid to a government; a shared
payment named with both amounts; a government selling services added as
a vendor; payroll remittances stay with pay; a fee on a card follows the
card payment); fasb-asc.md also quotes 45-22 and 45-22A; bookspec
example cash-flow.government-fees.toml (a filing fee and a lawyer on
one organization-costs account, a license on taxes and licenses with no
party, a penalty to a tax agency on the wrong account, paper from a
supplier, an annual report paid through a registered agent, 37.00 the
state's and 100.00 the agent's; every figure by hand) with a new `class.<a..g>`
key in the
cash_flow query (bookspec README; the runner checks every class the
statement has is given); testing.md; STATUS.

Tests: ledger-core tests/spec_cash_flow.rs
`a_payment_to_a_government_is_other_operating` (the filing fee and a
penalty to a tax agency (g); the same account paid to a lawyer, or with
no payee, (d); its reversal next month keeps (g); a refund (c)),
`a_government_payee_moves_a_fee_on_any_account` (a taxes_licenses
license with no party (g); a payment shared half and half between a
government and a printer split 50.00 (g) and 50.00 (d), the government
alone all (g)), `a_shared_government_payment_splits_to_the_cent` (a
third by percent of 100.01: 33.34 (g), 66.67 (d); amounts split as
given; the reversal mirrors to the cent),
`a_payroll_remittance_to_a_tax_agency_stays_pay` (withheld taxes
remitted from a payable holding its payroll role, and pay on a
salaries_wages account, stay (d) with the IRS named; the employer's tax
on its own expense account is (g)),
`a_government_selling_services_is_a_supplier` (postage to a vendor (d);
given government_agency, (g): the limit the handbook guards); src
cashflow.rs `tests` `a_government_part_rounds_half_to_even` and the
proptest `a_government_part_sums_and_mirrors`; the bookspec example;
from the P4 review, `a_reversal_takes_its_originals_payee` (a fee and
its reversal next month land in one class, the chain's payee deciding:
the books keep a chain's parties one, so reading the reversal's own
parties is an equivalent mutant) and
`a_shared_government_payment_a_member_paid_splits_both_ways` (a shared
payment a member paid: each part with its own on_behalf; fails with
the on-behalf part unsplit). docs/mcp-interface.md: books.cash_flow
and the Roles paragraph say a government or tax agency payee makes a
payment other operating, and a shared one two operating lines.
Broken to confirm: without the payee check the five spec tests and the
example fail; without the split for mixed payees the two shared-payment
tests and the example (class.d -549.50) fail; without the payroll
exclusion the payroll test fails; rounding toward zero fails both unit
tests; without the tax-category route
`operating_classes_follow_asc_230_10_45_25`, the second test and the
example fail. The viewer's cash flow page,
rendered on made-up books before and after: the fee moved from "Cash
paid to suppliers and employees" to "Other operating cash payments",
every total the same; and on made-up books with an annual report
shared between the state and an agent: each part on its own class
line, every total the same.

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

2026-10-22 19:31:18 -06:00

19 KiB

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FASB Accounting Standards Codification: paragraphs read directly

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 DART roadmaps (see README).

360-10-35-4 (Property, plant, and equipment: depreciation)

A productive facility's cost is spread over its expected useful life, allocated "as equitably as possible" to the periods that get its services. Depreciation distributes cost, "less salvage (if any)", over the estimated useful life "in a systematic and rational manner"; it is "a process of allocation, not of valuation." No method is prescribed. → B-15: straight line, salvage never depreciated, partial months by days (each day of service bears the same cost) is one systematic and rational allocation.

340-10-05-2, -05-4, -05-5 (Other assets and deferred costs: prepaids)

Prepaid expenses are assets "typically used up or expire within the normal operating cycle," paid "in advance of their use or consumption" (05-4); examples include insurance, interest, rents, taxes, and advertising not yet received (05-5). The Subtopic covers only their nature (05-2): it prescribes no expensing method. → B-16: a prepaid is an asset, expensed over the months it covers (a convention; the ASC is silent on the method).

210-10-45-1, -45-2, -45-5 (Balance sheet: current assets and liabilities)

Prepaid expenses are among current assets (45-1(g)), not because they become cash but because they would otherwise use current assets in the operating cycle (45-2). A total of current liabilities "shall be presented in classified balance sheets" (45-5): the rule applies when a balance sheet is classified. → wanderbooks' balance sheet is unclassified (by element), which this Subtopic permits; a classified layout would need current/noncurrent account roles.

230-10-45-7, -10, -12(a), -13(a), -14(b), -15(b) (Statement of cash flows)

Gross amounts are "more relevant" than net (45-7). Cash receipts and payments are classified "as resulting from investing, financing, or operating activities" (45-10). Collections on, and disbursements for, loans the entity makes are investing (45-12(a), 45-13(a)). Proceeds of "other short- or long-term borrowing" are financing inflows (45-14(b)); "repayments of amounts borrowed" are financing outflows (45-15(b)). → 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), "Cash payments to other suppliers and employees for other goods or services" (b), "Cash payments to governments for taxes, duties, fines, and other fees or penalties" (c), interest to lenders and other creditors (d), and others ((e), (ee), (f)). (Income taxes fall under (c); 45-25 names them a class.) Quotes (b) and (c) checked 2026-10-22 against EY's guide as retrieved that day (SHA-256 de9224a9e3ec7ef771e7ee076f99471ee727308c3dedb2df20ea1ee4e285fbdb, page 43). → rule 5: a payment to a government, decided by its payee or a taxes-and-licenses account, is (g), not (d).
230-10-45-22, 45-22A (EY pp. 44-45, the same copy): a receipt or payment with "aspects of more than one class of cash flows" is classed first by specific guidance; without it, "a reporting entity shall determine each separately identifiable source or each separately identifiable use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows" and classify each "in financing, investing, or operating activities"; only what "cannot be separated by source or use" goes by the predominant source or use (45-22A). → rule 5: a payment shared between a government and a supplier is split by the parties' resolved shares, each part classed by its payee (the paragraph names the three activities; reading it for 45-25's classes too is a CONVENTION).
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 the principal (55-37) and recognizes revenue "in the gross amount of consideration" it expects (55-37B); an agent recognizes only its fee or commission (55-38). → B-17: an app seller is the principal for its app, so its revenue is the gross price; the platform's commission is an expense.

450-30-25-1 (Gain contingencies)

Added 2026-10-21 for B-37 from the paragraph's text as Deloitte's DART roadmaps quote it (originally FAS 5 ¶17(a)); not re-read in the ASC basic view: check it there at the next reading. A contingency that might result in a gain "usually should not be reflected in the financial statements because to do so might be to recognize revenue before its realization." → B-37 item 4: a payment hoped for from work done on spec is recorded neither as a receivable nor as income until it is received; the unrecovered cost is a figure, never an asset.

340-40-25-5 (Costs to fulfill a contract)

Added 2026-10-21 for B-37 as the DART revenue roadmap sets it out; not re-read in the ASC basic view: check it there at the next reading. Costs incurred to fulfill a contract (one not in another Topic's scope) are an asset only if all three criteria are met: they relate directly to a contract or an anticipated contract the entity can specifically identify; they generate or enhance resources used in satisfying performance obligations in the future; and they "are expected to be recovered." → B-37 item 4 (with B-22): on-spec work has no contract it is expected to recover its costs from, so its costs are expensed as incurred.

340-40-25-7 (Costs that relate directly to a contract)

Added 2026-10-22 for B-37 item 8 as the DART revenue roadmap sets it out; not re-read in the ASC basic view: check it there at the next reading. The costs that "relate directly to a contract" (25-5(a)) are (a) direct labor, (b) direct materials, (c) allocations of costs that relate directly to the contract or its activities (supervision, insurance, depreciation of the tools used on it), (d) costs explicitly chargeable to the customer, and (e) other costs incurred only because the entity entered into the contract (payments to subcontractors, for one). Allocations are among the directly related costs, not set apart from them.

340-40-25-8 (Costs expensed when incurred)

Added 2026-10-22 with 25-7, from the same DART chapter (13.3), likewise to check in the basic view. Expensed when incurred: general and administrative costs (unless explicitly chargeable to the customer under the contract), costs of wasted materials, labor or other resources not reflected in the contract's price, costs that relate to satisfied (or partly satisfied) performance obligations, and costs the entity cannot tell apart between satisfied and unsatisfied obligations. → B-37 item 8 (with 25-7): a cost traceable to one job (25-7(a), (b), (d), (e)) is that job's, whole, on the document's line; a cost that relates to several jobs reaches them only by an allocation on a stated basis (25-7(c)), which the books record as the allocation convention's own entries, never as a percentage on the document; general and administrative cost (25-8) is company overhead, no project's.

19 KiB Raw Blame History