Question

I am working with the statement of cash flows and how pension expense is recorded and handled on the statement of cash flows. is it considered a noncash expense and always added back to net income? I am just confused as to how to deal with pension expense regarding the statement of cash flows.

as you can see in the image, the pension expense is added back to net income. why is this?

12 weeks $ 3,078 (In millions) Cash Flows from Operating Activities: Net earnings including noncontrolling interests Adjustments to reconcile net earnings including noncontrolling interests to net cash provided by operating activities: Depreciation and amortization LIFO (credit) charge Stock-based employee compensation Expense for company-sponsored pension plans Goodwill impairment charge Deferred income taxes 2,465 29 154 76 (45)

Answer 1

An adjustment in the cash flows from operating activities section may be required for the transactions related to the funding of pension plans. The amount that is charged to the pension expense for an accounting year often differs from the actual amount funded by the company. The amount that has been charged to the pension expense on the income statement is based on the computations done in accordance with SFAS 87. Accordingly, the difference between the pension expense and the actual funding is an accrued liability if the expense exceeds funding.

Therefore, in the Cash flows from Operating activities section, the net income is adjusted because the unfunded pension cost reduced the net income. However, it did not result in an actual outflow of the cash and hence, it is added back to the net income.