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qualler
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| Posted: 18 May 2009 at 14:20 | IP Logged
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I really liked the Fake Cash method.
Basically, all you do is compare beginning of the year account balances on the balance sheet with end of the year balances, find what change there was, debit or credit that account, and then do the opposite to your "fake cash" account.
Ex. A/R at 12/31/08 = 1,000, A/R at 12/31/09 = 2,000
The change is a Dr to A/R, therefore it would be a Cr to "Fake Cash", and thus you have a decrease in cash on the SOCF.
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jlfeldes
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| Posted: 18 May 2009 at 14:30 | IP Logged
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Thanks but doesnt the way cash goes depending upon inflows and outflows.
like i ahve done this.
with your example your saying it would bee.
NI say is XXX
Operating income from operatinng activies = XXX-1000?
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jlfeldes
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| Posted: 18 May 2009 at 14:36 | IP Logged
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also please help explain this
Rory Co.’s prepaid insurance was $50,000 at December 31, Year 2, and $25,000 at December 31, Year 1. Insurance expense
was $20,000 for Year 2 and $15,000 for Year 1. What amount of cash disbursements for insurance would be reported in Rory’s
Year 2 net cash flows from operating activities presented on a direct basis?
A. $20,000
B. $45,000
C. $55,000
D. $30,000
Answer (B) is correct. Cash disbursements for insurance is equal to the $50,000 ending balance, plus the $20,000 expensed in
Year 2, minus the $25,000 beginning balance. As indicated below, cash disbursements for insurance are equal to $45,000.
Prepaid Insurance
12/31/Yr 1 $25,000 |
Disbursement 45,000 | $20,000 Expense
12/31/Yr 2 $50,000 |
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qualler
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| Posted: 18 May 2009 at 14:48 | IP Logged
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I'm not sure what you mean by cash going the way of inflows/outflows. I was just showing how the teachers at Yaeger teach the "Fake Cash" method.
Using that method on the question above I would do this:
Ppd Insurance yr 1 - $25,000
Ppd Insurance yr 2 - $50,000
Change in Ppd Insurance account (an asset, thus a Debit balance) - $25,000 debit; credit "Fake Cash" for $25,000 to balance the entry:
Prepaid Insurance 25,000
Fake Cash 25,000
Since this is the direct method and we are not starting with Net Income like we do on the indirect method, add the expense as the J/E in that account would be thus:
Insurance expense 20,000
Cash 20,000
Basically the Fake Cash method is an easy way of figuring out the change in cash based on changes in balances of balance sheet accounts.
__________________
FAR - 56, 65, 67, 71, *78*
BEC - 60, 69, 71, *81*
AUD - 54, 67, 72, 74, *81*
REG - 49, 51, 66, 65, *78*
Ethics - *90*
Qualler, CPA
The Blogulator
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jlfeldes
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| Posted: 18 May 2009 at 14:58 | IP Logged
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IM STILL TOTALLY CONFUSED,
WHAT HAPPENS WITH EACH METHOD DIRECT/INDIRECT CAN YOU EXPLAIN THE DIFF WITH THE USE OF THE FAKE CASH
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Topic: FAR - Yaeger Students
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