...statements of cash flows? Blockbuster was reporting the cost of the buying DVDs in the investing part of the flow. However, after talking to the SEC they decided that these costs should be placed onto the operating cash flow. This had a large negative effect on their operating cash flows during the restatement periods 2. Read SFAS #95, paragraphs 24 and 85-87, and explain how this relates to Blockbuster. This is very similar to what the standard is referring to in paragraph 24. It is an asset that is rented out for a short period of time and then is sold when the movie become a little older. Paragraph 87 describes some of the situations in which classification is not totally clear. It says an item needs to be recognized based on the predominate source of cash flow. In this case the DVDs lead to rental revenue, which are part of the company’s operations. Read the article: “Quick Cash via Receivables Deals Can Leave a Blurry Fiscal Picture,” by Michael Rapoport, in Wall Street Journal, June 16, 2006, p. C3. 3. What “trick” can companies use to boost their operating cash flows, at least in the short run? Companies can securitize their accounts receivables. They bundle their receivables and then using an off-balance entity they sell these securities. The company will receive cash from these securities with the promise of paying back the investors when the customers pay the receivables. This allows them to increase operating cash flows and does not get...
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...“Accounting for Cash Flow throughout the Business Utilizing Accrual Accounting Practices” Group 4 Kesha Smith Dave Rebar Amber Sabrina Tanisorn Ruengpinyophun February 17, 2012 Table of Content I. The Statement of Cash Flow II. The Statement of Cash Flow The statement of cash flow (SCF) is one major part of basic financial statements. The purpose of the SCF is to provide information about the cash receipts and cash disbursements of an enterprise that occurred during a period (Spiceland, Sepe & Tomassini, 2004, p. 198). The SCF reflects the liquidity and solvency position of a company. It provides inside information on the company’s ability to generate cash from its main operations, and it’s an indicator to help give information on future expansion. It also helps gauge the company’s ability to handle cash effectively. An analysis of the SCF will provide the company information on the funds available to help repay debts and repayment of assets (Lamas & Gregorio, 2009, p. 99). There are three primary elements of the SCF, (1) operating activities, (2) investing activities, and (3) financing activities; there are two other requirements: (4) the reconciliation of the net increase or decrease in cash with change in the balance of the cash account and (5) noncash investing and financing activities (Spiceland, Sepe, & Tomassini, 2004, p1188). Let’s get a better insight of the flow of each activity. Operational activities are the inflow...
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...The role of the cash flow statement and it's classification: The quality and content of the financial reporting have expanded impressively since the accounting profession used the cash flow statements (CFS) as an essential part of the financial statement. A standard structure configuration has been given not just for deriving valuable ratios to supplement the traditional ratio analysis, but also it shows the difference between the more realistic companies. The accrual accounting does not measure cash flows. Consequently the shortage of cash flow data has made issues for different partners in evaluating an organization's execution, operating capability and liquidity. Accounting information characteristics of value once in a while string along...
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...Introduction While United States Generally Accepted Accounting Principles (U.S. GAAP) are required throughout the United States, other countries utilize other methods of classifying their financial statement items. While the standards of accounting differ among many countries, there has recently been an effort to attain a universal set of standards under International Financial Reporting Standards (IFRS). While this has not yet been achieved, multiple countries have made an effort to converge their standards with IFRS. This paper attempts to illustrate the diversity that currently exists throughout the accounting world, briefly comparing several key differences of U.S. GAAP to the standards used in Hong Kong, China, Mexico, and the United Kingdom. Hong Kong With a few minor exceptions, Hong Kong has officially converged its financial reporting standards with IFRS effective January 1, 2005 (AdoptIFRS.org). Hong Kong’s primary GAAP-required statements are known as Hong Kong Financial Reporting Standards (HKFRSs), including their interpretations (Deloitte Global Services Limited, 2013). Other mandated GAAP requirements are found in Hong Kong’s Companies Ordinance as well as its Listing Rules (Deloitte Global Services Limited, 2013). The following paragraphs briefly highlight key financial statement items and their differing treatments by Hong Kong under IFRS and U.S. GAAP. The Balance Sheet While U.S. GAAP only provides a small amount of direction when clarifying how assets...
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...Accrual Accounting Two methods used to help human service organizations keep financial records according to Martin (2001), are referred to as “cash accounting and accrual accounting” (pg. 8, Cash and Accrual Accounting). However the accrual method is highly preferred and for many organizations this method is required. This paper will discuss their differences, why accrual accounting is important, and the importance of a cash flow statement with regard to financial management of an organization. Although cash accounting and accrual accounting are methods used to keep financial records, each method focuses on a different recording and reporting time frame pertaining to revenues and expenses. With cash accounting there are no records of receivables, payables, and this method lacks the ability to track partial payments. This is because revenues are recorded as of the date they are received despite when they are earned, and expenses are recorded as of the date they are paid despite when they are incurred (Snyder, n.d.). With accrual accounting revenues are recorded when earned despite when they are received, and expenses are recorded as they are incurred rather than when they are paid (Snyder, n.d.). The accrual method is important because it better reflects the organizations outcomes regarding their operations. Unlike cash accounting, accrual accounting includes receivables and payables, and revenues and expenses are recorded in full despite the fact that partial payments may...
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... 1. Why should Caledonia focus on project free cash flows as opposed to the accounting profits earned by the projects when analyzing whether to undertake the project? The focus should be on free cash flows rather than accounting profits because these are the flows that the firm receives and can reinvest. After correctly examining cash flows an analyze of the timing of the benefit or cost can be done correctly. Incremental cash flows should be looked at the project from the point of the company as a whole; the incremental cash flows are the marginal benefits from the project and, as such, are the increased value to the firm from accepting the project. 2. What are the incremental cash flows for the projects in year 1 through 5 and how do these cash flows differ from accounting profits or earrings? In years through 5 the incremental cash flow data indicates the cash flows peak a year 3 which increased the positive cash flow. It did drop in year for and five but was greater then years 1 and 2. We can see a positive cash flow balance although there was a revenue drop. Incremental cash flow differs from accounting profits because accounting profits include taxes and cash flow does not. 3. What is the project initial outlay? The project initial outlay would be about 100k. The 100k for working capital plus the cost of the plant equipment of 7.9 million and the shipping 4. Sketch out a cash flow diagram for this project. [pic] Chart coincides...
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...Financial Statements - Purpose of Accounting ACC 280 May 17, 2011 Carol Harker Financial Statements - Purpose of Accounting Every business has a need to generate profit and remain in the black. In today’s business world, it is important to have the means to track and monitor the gain or increase of income and profits within the organization. According to Weygandt, “Accounting can be defined as activity that is used to identify, record, and communicate the economic events of a business.” (Weygandt. 2008.) Included in the report we will discuss the purpose of accounting and identify the four basic types of financial statements that are used. Finally we will discuss how the core financial statements of accounting are connected to each other and their uses for all stakeholders in a company. The purpose of accounting is to keep track of economic events for a business. “Accountants are primarily employed to track the flow of money through an organization” (QuickMBA, 2010). Good accounting practices make it easy to keep track of finances for any type of business. “Keeping an accurate balance sheet is a fundamental part of running even the most basic of an organization” (QuickMBA, 2010). Activities such as sales, purchases, and any interest earned from investments are classified as economic and posted to a specified account record. Accountants have a code of ethics that they must adhere to ensure integrity in the reporting process. The use of an accounting system for a business will...
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...differences in the industries and different measurements conventions affect presentations, and if one of the companies uses the cash basis of accounting, how would that differ from the accrual basis. The team will also be discussing in what ways the elements of the financial statements interact with one another. How might changing one of the financial statements affect the other financial statements? Why is it essential to understand the relationship between the financial statements? In what ways do the elements of the financial statements interact with one another? The objectives of Financial Statement presentation are to show an interrelated financial depiction of an entity's activities, to disaggregate information so that it is useful in evaluating an entity's future cash flows, and to present information about liquidity and financial flexibility of said entity. An organized financial picture means items in financial statements are clear and that the financial statements of an entity complement one another regularly. Financial statement analysis aimed at objectives such as assessing the amount, timing, and uncertainty of future cash flows requires financial information that is disaggregated into reasonably homogeneous groups of items. If items differ economically, users may wish to take that into account differently in predicting future cash flows (2009). An entity’s liquidity is important because it allows for users to gauge an entity’s capability to meet its...
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...business managers need to be aware of the need to manage cash flow in the business. 2. What is cash flow? The flow of money that comes into a business and that a business spends. 3. What are contingencies? Out of a businesses cash flow some money for contingencies need to be set aside. This is an unanticipated event that leads to financial difficulty. Businesses should have money saved for such events. 4. Credit ratings: A well-managed business has a good credit rating. This means lenders will be prepared to end the business money because they it is safe to do so. Credit ratings are determined by financial organizations that access the capacity of the business to repay debt and manage finances. If a business has a good credit rating, creditors will readily provide funds to expand businesses operations. It’s important because it determines weather a business will have funds to expand operations. 5. What is accounting? Accounting is an administrative tool for recording financial transactions, so that a summary of what has happened to the business money can be traced. Every financial transaction should be recorded and entered into accounts that can be summarized into financial reports. Financial reports and statements provide information about the trading period. These statements are set out in a standard format that is easy to read and understand. The main types of financial reports and statements are: * Cash flow statements Provide information about the liquidity...
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...DIPLOMA UNIT 5 BUSINESS ACCOUNTING TINOTENDA MARECHA LAMBETH COLLEGE CV FASHIONS/T-SHIRT MANIA 2013 BTEC L3 BUSINESS DIPLOMA UNIT 5 BUSINESS ACCOUNTING TINOTENDA MARECHA LAMBETH COLLEGE CONTENTS DETAILS PAGE NUMBER PURPOSE OF ACCOUNTING-P1 | 2 | CAPITAL INCOME,EXPENDITURE AND REVENUE INCOME AND EXPENDITURE-P2 | 3 | CASHFLOW STATEMENT-P3(FIND ATTACHED CASHFLOW STATEMENT) | 4 | TRADING,PROFIT AND LOSS ACCOUNT-P4 | 5 | BALANCE SHEET-P4 | 6 | RATIO ANALYSIS:PROFITABILITY AND LIQUIDITY | 7 | EFFICIENCY AND INVESTMENT RATIOS | 8 | M1 | 9 | M2:RATIO ANALYSIS | 11 | D1 | 12 | D2 | 14 | CV FASHIONS P1: WHAT IS THE MAIN PURPOSE OF ACCOUNTING WITHIN A BUSINESS? INTRODUCTION Accounting is the process of recording...
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...pass). This means 40% is the highest grade that piece of work will receive. It is vitally important that you plan your time to ensure that you submit your work on time. This means making allowance for possible delays in transportation, printing, and any other potential problems which may be planned for, and therefore do not constitute just grounds for mitigation. If you wish to apply for mitigation, you should make sure you have read the guidelines in the Student Handbook, and obtain a form from the office. Work which is late, and accompanied by an application for mitigation, will be capped until the outcome of the mitigation application is known. Should mitigation be approved, the cap will be lifted. Principles of Finance and Accounting Money makes the world go round and is the fundamental impression of economics. Finance is the study and looking at the way that people and organisations collect, distribute and utilize money and take risks to increase it. For the proper management of a business from the monetary point...
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...financial accounting Financial accounting is a specific type of accounting that is used by businesses to prepare reports on the finances of a firm for people outside the organization, such as stockholders or government agencies. It is governed by specific accounting standards to insure uniformity in reporting. What Is Financial Accounting? | eHow.com http://www.ehow.com/about_4710004_what-financial-accounting.html#ixzz29jbLZGeI http://www.investopedia.com/terms/f/financialaccounting.asp#axzz29okOfFVw ----------------------------------------------------------------------------------------------------------------- Major objectives of fa http://www.ehow.com/info_8131759_objectives-financial-accounting.html The objective of financial accounting is to provide information to the end user http://www.blurtit.com/q288083.html Objective of Financial Accounting (FA): The objective of financial accounting is to collect accurate, systematic, and timely financial data and other financial information, and to compile and consolidate it in an organized and systematic way, according to the principles and rules of accounting, for reporting purpose. The financial managers use these reports to assess the financial position of the company through various financial management tools and then the financial position can be compared to, or benchmarked against, the industry norms. http://wiki.answers.com/Q/What_are_the_objectives_of_financial_accounting The purpose of accounting can be...
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...561 Accounting June 17, 2012 Differentiation of Financial Statements Financial statements provide a snapshot of a company. These statements are used to make financial decisions concerning company operations, acquiring business credit, and investment choices. Commonly reviewed statements include balance sheet, income statement, statement of cash flows, and retained earnings statement. Each statement provides unique information used for financial decision making. Balance Sheet The balance sheet describes a business on a specific date and has three sections: assets, liabilities, and the owner’s equity. Assets are resources held by the company. Cash is the first asset listed. Assets quickly converted to cash are listed next and permanent assets, such as land are listed last. Liabilities are the company’s debts such as accounts payable and salaries payable. Liabilities are listed in the order that they are repaid. Owner’s equity is the owner’s claims on the assets of the business and has two sections: capital stock and retained earnings. The total assets must equal the sum of all the liabilities and owner’s equity. Income Statement The income statement is a lists a company’s revenues and expenses for a period of time. Revenue is an increase in the company’s assets through its profit-making activities that increase positive cash flow. Expenses are decreases in the company’s assets through its profit-making activities that result in negative cash flow. Net...
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...bonds are issued and the old bonds are recalled, and differences between amortizations of flotation costs. The next page contains a general format for constructing the relevant cash flows used in determining whether a bond refunding is advantageous or not. Note the similarity to the Purchase/Replacement format that we encountered previously during Capital Budgeting (this is, after all, a capital investment project itself). CASH FLOW ANALYSIS BOND REFUNDING DECISION Today Intervening Years Last Year ├────────────────────────────────────┼───────────────────────────────────────┤ A. G. Net interest savings I. B. H. Less: Change in amortization J. Maturity value of old bonds ---------------------------- C. Write-off unamortized flotation Change in taxable income costs of old issue, t Less: Taxes D. ---------------------------- Change in net Income E. Cash proceeds from new bond issue in excess of cost to refund old Plus: Change in amortization bond issue, if different1 ----------------------------- Change in operating cash flow F. Tax effect of accounting gain (loss) on...
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... 1. Performed counseling services for $18,000 cash. 2. On February 1, 2013, paid $12,000 cash to rent office space for the coming year. 3. Adjusted the account to reflect the amount of rent used during the year. Required Based this information alone a. Record the events under an accounting equation. b. Prepare an income statement, balance sheet, and state of cash flows for the 2013 accounting period. c. Ignoring all other future events, what is the amount of rent expense that would be recognized in 2014? 2-14A Ross, Attorney at Law, experienced the following transactions in 2013, the first year of operations. 1. Purchased $1,500 of office supplies on account. 2. Accepted $36,000 on February 1, 2013, as a retainer for services to be performed evenly over the next 12 months. 3. Performed legal services for cash of $84,000. 4. Paid cash for salaries expense of $32,000. 5. Paid a cash dividend to the stockholders of $8,000. 6. Paid $1,200 of the amount due on accounts payable. 7. Determined that the end of the accounting period, $150 of office supplies remained on hand. 8. On December 31, 2013, recognized the revenue that had been earned for services performed in accordance with Transaction 2. Required | Assets = Liabilities + Stk. Equity | | | | Cash + Supplies = Accts + Unearn. Rev + Ret. Earn. | Rev. - Exp. = Net Inc. | Cash Flow | 1 | NA + 1,500 = 1,500 + NA ...
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