Joined: 12 Feb 2011 Location: United States
Online Status: Offline Posts: 6
Posted: 12 Feb 2011 at 14:42 | IP Logged
Hello I did a practice problem in one of my intemediate financial books for practice but do not have the answers for it. Basically, it was a SCF with an Cash Basis Balance Sheet and Income statement and a list of changes in the accruals for the year. I did the SCF based on the cash basis numbers and ignored the changes in accrual's. Is that correct? I get confused since usually you're given the accrual numbers and convert to cash?
Joined: 19 Mar 2010 Location: United States
Online Status: Offline Posts: 112
Posted: 15 Feb 2011 at 21:53 | IP Logged
Here's how I teach SCF. You have to tell a story about each item.
Step 1: Calculate change in all of your B/S accounts.
Step 2: Start with your I/S account that is closest to what you are trying to
calculate. So for payments to suppliers, it's COGS.
Step 3: I/S account will need to be adjusted by one or possibly two B/S
account changes. COGS for example needs to be adjusted for Inventory
(we may have sold stuff that we bought last year) and for A/P (we didn't
pay all of our bills this year).
Step 4: Figure if you're going to add or subtract the adjusting account(s)
in step 3. Again, tell the story. A/P went down? Well, we spent more
cash to pay bills from last year. A/R went up? We upped our collections
from last year's sales.
Memorizing sux. Use logic - you won't forget it.
I teach Intro & Intermediate Accounting. If you want to PM me the
question, I'll solve it in Excel for you and send you the answer. I could
use the practice, LOL!
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Topic: cash flow statement
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