scholarly journals Finding an Easier Way to Explain the Statement of Cash Flows

2021 ◽  
Vol 11 (3) ◽  
pp. 25
Author(s):  
Seung Hwan Kim
Keyword(s):  
Indirect Method ◽  
Financial Statements ◽  
Cash Flows ◽  
Financial Accounting ◽  
The Other ◽  
Net Income ◽  
Public Companies ◽  
Difficult Time ◽  
Statement Of Cash Flows ◽  
Operating Activities

The statement of cash flows is one of the required financial statements of public companies, and thus is required of all accounting majors. After learning the other required financial statements in an introductory financial accounting course and, again, in the first intermediate accounting course, accounting majors learn how to prepare the statement of cash flows in the second or last intermediate accounting course. Most accounting majors find the statement of cash flows significantly more difficult to learn than any other financial statements. Especially, students find it most difficult to understand the indirect method of preparing the statement of cash flows. Preparing the statement of cash flows using the indirect method, students go through the most difficult time, specifically, doing the adjustments that are made to net income to reconcile to cash flows from operating activities.In this paper, presented is a different way to explain the principles of indirect method of preparing the statement of cash flows with a focus on the reconciliation of net income to cash flows from operating activities. Different from the explanations in the textbooks available in the market, the approach presented in the paper is preferred by all the students who were taught the statement of cash flows. Also, pointed out in the paper are a few things that students are easily confused of in learning the statement of cash flows.

Analyzing Two Investments—An Instructional Case to Introduce Basic Financial Accounting Concepts

2018 ◽  
Vol 33 (4) ◽  
pp. 47-56
Author(s):  
Wendy J. Bailey ◽  
Janet A. Samuels
Keyword(s):  
Financial Reporting ◽  
Business Students ◽  
Balance Sheet ◽  
Cash Flows ◽  
Legal Aspects ◽  
Financial Accounting ◽  
Net Income ◽  
Income Statement ◽  
Orientation Session ◽  
Statement Of Cash Flows

ABSTRACT This case introduces basic financial accounting concepts to graduate business students in an accounting orientation session (i.e., “boot camp”). Students assume they have invested in two cupcake businesses in Paris and they now want to determine which business performed best. Instructors can use this case, which provides students an opportunity to compare two businesses, to achieve several learning objectives including those related to accrual accounting (i.e., when to record transactions), the legal aspects of business (i.e., company structure, stock ownership, international accounting), and the use of estimates in financial reporting (i.e., depreciation, bad debts). This case also introduces students to the three basic financial statements (i.e., balance sheet, income statement, statement of cash flows), and the evaluation of financial results (i.e., net income versus cash flow, ratios). We have found that this simple, straightforward case helps students feel more confident when working with basic financial accounting concepts.

scholarly journals Back To Basics: Algebraic Foundations Of The Statement Of Cash Flows

2013 ◽  
Vol 7 (1) ◽  
pp. 93-98
Author(s):  
Donald T. Joyner ◽  
Jean-Marie Banatte ◽  
V. Reddy Dondeti
Keyword(s):  
Indirect Method ◽  
Business Students ◽  
Balance Sheet ◽  
Cash Flows ◽  
Black Box ◽  
Net Income ◽  
Undergraduate Level ◽  
Accounts Receivable ◽  
Accounts Payable ◽  
Statement Of Cash Flows

The indirect method for preparing the statement of cash flows, as described in many standard textbooks, involves an item-by-item approach, telling you to add to or subtract from the net income, the increases or decreases in the balance sheet items, such as accounts payable or accounts receivable. Many business students, especially at the undergraduate level, find these black-box-rules confusing. In recent years, several articles have appeared in the accounting literature, exploring the link between the algebraic foundations and the enumeration of items in the statement of cash flows. In this paper, an explanation is provided, through an analysis of the basic algebraic equation of the balance sheet, for the black-box-rules of the indirect method in a simple and concise manner.

scholarly journals A Research Note On The Issue Of Non-Articulation And The Method Used To Calculate Net Operating Cash Flow

2011 ◽  
Vol 25 (1) ◽  
Author(s):  
Terry J. Ward ◽  
Jon Woodroof ◽  
Benjamin P. Foster
Keyword(s):  
Cash Flow ◽  
Indirect Method ◽  
Direct Method ◽  
Accounting Standards ◽  
Cash Flows ◽  
Financial Accounting ◽  
Financial Accounting Standards Board ◽  
Font Size ◽  
Operating Cash Flow ◽  
Statement Of Cash Flows

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">Using a proxy for nonarticulation, prior researchers found evidence that many companies using the indirect method of reporting net cash flow from operations have a significant level of nonarticulation.<span style="mso-spacerun: yes;">&nbsp; </span>The purpose of this study is to determine if companies using the direct method of reporting net cash flow from operations experience significantly lower levels of nonarticulation than companies that use the indirect method of reporting net cash flow from operations.<span style="mso-spacerun: yes;">&nbsp; </span>Results show that companies using the direct method have significantly less nonarticulation than companies using the indirect method.<span style="mso-spacerun: yes;">&nbsp; </span>This finding suggests that the Financial Accounting Standards Board (FASB) should consider requiring companies to use the direct method of preparing the Statement of Cash Flows.</span></span></p>

scholarly journals A Conceptual Framework For The Indirect Method Of Reporting Net Cash Flow From Operating Activities

2010 ◽  
Vol 3 (12) ◽  
pp. 19-32
Author(s):  
Ting J. (TJ) Wang
Keyword(s):  
Conceptual Framework ◽  
Cash Flow ◽  
Indirect Method ◽  
Accounting Standards ◽  
Cash Flows ◽  
Financial Accounting ◽  
International Accounting Standards ◽  
Approach To Teaching ◽  
Statement Of Cash Flows ◽  
Cash Basis

This paper describes the fundamental concept of the reconciliation behind the indirect method of the statement of cash flows. A conceptual framework is presented to demonstrate how accrual- and cash-basis accounting methods relate to each other and to illustrate the concept of reconciling these two accounting methods. The conceptual framework recognizes additional categories of effects defined in the Accounting Standards Codification 230-10-45-28 and International Accounting Standards 7.18 (Statement of Financial Accounting Standards No. 95) in regard to the indirect method, which makes the concept of reconciliation between the accrual- and cash-basis more thorough and complete. The paper provides an approach to teaching the concept of the reconciliation of accrual- and cash-based accounting methods.

scholarly journals Accounting support of the strategic analysis of activity of the extractive industry enterprises and development of quarries depending on solvency of buyers

2021 ◽  
pp. 45-51
Author(s):  
I.R. Polishchuk ◽  
V.V. Zhydkova
Keyword(s):  
Mining Industry ◽  
Financial Statements ◽  
Cash Flows ◽  
Net Income ◽  
Extractive Industry ◽  
Seasonal Demand ◽  
Third Stage ◽  
Implementation Stages ◽  
Statement Of Cash Flows ◽  
The Cost

The branch features of functioning the enterprises of the extractive industry influencing the organization of the account, the analysis and audit are established: limited stocks of minerals influence the actual period of functioning of the enterprise; seasonal demand for products; complex production; the location of the enterprise in relation to settlements must be consistent with the safety of the technological process for the environment, people; obtaining special permits for legitimate subsoil use. The elements of accounting policy as a tool for the actual reflection of contractual and depreciation policy in the financial statements are described. It was found that all surveyed companies apply a uniform depreciation policy. Given the seasonal nature of production and underutilization of capacity, it is proposed to move to the application of intensive depreciation policy. This will allow you to clearly plan the timing of equipment upgrades and the cost of own or borrowed funds for its implementation Stages of assessment of buyers’ solvency are offered. The first stage involves establishing the degree of implementation of agreements between buyers and the mining industry. The second stage involves determining the completeness of the provision of cash or non-cash proceeds from sales based on the establishment of correlations between the indicators of the statement of financial performance and the statement of cash flows. The third stage involves establishing the increase in receivables for sold products, goods, works, services for the reporting period and the share of the increase in receivables in the net income from sales for the reporting period.

scholarly journals Twenty-one years without monetary correction in Brazil: impacts on the comparability of the accounting information of siderurgical and metallurgical companies

2018 ◽  
Vol 29 (78) ◽  
pp. 355-374
Author(s):  
Wellington Rodrigues Silva Souza ◽  
Marcos Peters ◽  
Aldy Fernandes da Silva ◽  
Maria Thereza Pompa Antunes
Keyword(s):  
Balance Sheet ◽  
Financial Statements ◽  
Financial Accounting ◽  
Net Income ◽  
Negative Effects ◽  
Statistical Parameters ◽  
Return On Assets ◽  
Balance Sheets ◽  
Return On Equity ◽  
Accounting Recognition

Abstract The purpose of this study was to empirically verify the existence or not of a distortion in the comparability of information when inflationary effects are omitted from financial statements. Although inflation has been under control in Brazil since the Plano Real, with indices well below those recorded in the 1980s and 1990s, discussing the need for accounting recognition of the effects of inflation remains an extremely relevant and pertinent issue in light of the proposal of accounting to produce faithful information that closely reflects the economic reality in which organizations operate. The results of the research show that financial accounting has been directly affected by the omission of inflationary effects in financial statements, drawing attention to the negative effects this has caused on the quality of the information produced. In order to operationalize the research, the Balance Sheet Monetary Correction (BSMC) was applied to the balance sheets of Brazilian companies from the siderurgical and metallurgical sector listed on the BM&FBOVESPA in the period from 1996 to 2016. Based on the variables net income, return on equity (ROE), and return on assets (ROA), and two conceptual axes of comparability (between entities and between periods), the statistical parameters were developed and the hypotheses were defined, which were tested using the Student t parametric test. This article shows the damage caused to the decision-making process of the external users for whom financial statements are intended when these are prepared neglecting the effects of inflation. This is verifiable through the analyses of the results obtained, including the observation of significant distortions between the means of the corrected indicators and the means of the historical indicators, such as in the case of net income in 2001, 2002, 2012, 2013, 2014, and 2016 (33.98%, 91.92%, -65.54%, -30.01%, -53.59%, and 26.30% variation, respectively), of ROE (-67.16%, -61.43%, -53.06%, -63.46%, -133.81%, and 65.00% variations in 2008, 2009, 2010, 2011, 2014, and 2015, respectively), and of ROA (-26,70%, -41.14%, -33,34%, -43,49%, 98,83%, and -413,68% in 2005, 2009, 2010, 2011, 2012, and 2014, respectively).

scholarly journals The Preference of Direct or Indirect Methods in Preparing the Statement of Cash Flows in Decision Making: An Academic Perspective

2016 ◽  
Vol 8 (2) ◽  
pp. 206
Author(s):  
Abdullah, S. Hardan ◽  
Majed, A. Qabajeh ◽  
Aymen, M. Alshanti
Keyword(s):  
Decision Making ◽  
Indirect Method ◽  
Direct Method ◽  
Cash Flows ◽  
Decision Makers ◽  
Academic Rank ◽  
Indirect Methods ◽  
Statement Of Cash Flows ◽  
Qualitative Characteristics ◽  
Academic Sector

Two methods are used when reporting cash flows from operating activities: the direct method or the indirect method, both are acceptable from IAS with a preference of direct method. Thus, this paper examines which method of reporting the statement of cash flows provides useful information the decision makers rely on for decision making purposes. To achieve this aim, participants were selected from academic sector represented by universities professors. The study is based on the conceptual framework: qualitative characteristics of accounting information. To be useful, information must be relevant and represents faithfully what it claims to represent. In order to distinguish more useful financial information from those less useful, enhancing qualitative characteristics were examined. Results show that academic professors provide support for direct method of reporting cash flows over indirect method. The study sought to determine the effect of academic rank on these results. Evidence reveals that full and associate professors endorsed the preference of direct method more than assistant professors and lecturers. These results recommend the legislative bodies and entities to adopt the direct method in preparation the statement of cash flows.

Megascreens USA Inc.—A Foreign Operations Case

2007 ◽  
Vol 22 (4) ◽  
pp. 579-590 ◽  
Author(s):  
Charles A. Carslaw ◽  
S. E. C. Purvis
Keyword(s):  
Financial Reporting ◽  
Foreign Currency ◽  
Financial Statements ◽  
The United States ◽  
Cash Flows ◽  
Consolidated Financial Statements ◽  
Comprehensive Overview ◽  
Financial Reporting Standards ◽  
Foreign Operations ◽  
Statement Of Cash Flows

This relatively short case gives students a comprehensive overview of the steps required to prepare consolidated financial statements under U.S. GAAP when a subsidiary prepares its accounts under a foreign GAAP—in this case, International Financial Reporting Standards (IFRS). While the case is closely based on an actual Australasian company seeking listing in the United States, the product and the exact financial details are disguised. Specifically, the case exposes students to the following: accounting for foreign currency transactions; adjustments to convert foreign GAAP to U.S. GAAP (accounting for license fees); translation of financial statements; change of functional currency; remeasurement of financial statements; and foreign consolidation and statement of cash flows with foreign operations. The case has been field-tested in an advanced accounting course and is also suitable for use in international accounting courses. Both undergraduate and graduate students have profited from the case.

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