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Comments:ABC Case Study Project
Term Paper ID:42132
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Essay Subject:
Completion of a cash flow statement using the continental or indirect method The project ...... More...
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7 Pages / 1575 Words
3 sources, 3 Citations,
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Paper Abstract:
Completion of a cash flow statement using the continental or indirect method. The project includes comments on the accounting questions involved.
Paper Introduction:
Running head ABC CASE STUDYCommentsABC Case Study ProjectYour NameYour UniversityCommentsABC Case Study ProjectIndirect methodThe indirect method uses net-income before tax and dividends as a startingpoint It then on a debit and credit basis similar to a classic T accountmakes adjustments first for all non-cash items and then adjusts for allcash-based transactions not included in net income It should be notedthat net income here is similar to operating income under GAAP accounting An increase in an asset account is subtracted from net income
Text of the Paper:
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Dividenddeclared but unpaid represent a sort of involuntary loan from shareholderbetween declaration and payment dates.Conclusion The change in change in cash shown on the cash flow statement exactlymatches the change in cash on the balance sheet if it is adjusted for thepay down of the overdraft of credit line of £12 million. It is common for a bank account to have an attachedline of credit, which can be drawn down automatically on request dependingon the agreement between the bank and the borrower. It should be notedthat net income here is similar to operating income under GAAP accounting.An increase in an asset account is subtracted from net income, and anincrease in a liability account is added back to net income. This amount addedto the cash balance shown of the 2 7 balance sheet of £29 million equalsthe £41 million positive change in cash shown on the cash flow statement.ReferencesEpstein, B., & Jermakowicz , E. The indirect method is almostuniversally used, because FAS 95 requires a supplementary report similar tothe indirect method if a company chooses to use the direct method, and itis the only method under IASB. Is it a purchase with cash goingout or some non-cash charge such as depreciation or amortization. (International Accounting Standards Board,2 8)RulesThe following rules are used to make adjustments for changes in currentassets and liabilities, operating items not providing or using cash and non-operating items. Interpretation and Application ofInternational Financial Reporting Standards. Total accrueddepreciation increased by £5 million and that was after an adjustment of£1 million to reflect the equipment disposed of on which there was accrueddepreciation in this amount.Inventory Receivables Payables All of these items simply required reconciliation between 2 6 and2 7.Bank overdraft What is required here is an understanding of UK banking practice andreporting practice. Depreciation was charged £3 million to increase it to £5 from £2 . (Epstein & Jermakowicz , 2 7) Thedirect method commonly used under GAAP accounting of preparing a cash flowstatement results in a more easily understood report. New York:McGraw Hill.-----------------------[pic] Thisreflects the impact they have on cash. Hoboken, NJ: John Wiley &Sons.International Accounting Standards Board. Machinery remained constant after the disposal of machines thatoriginally cost £15. It then on a debit and credit basis similar to a classic T accountmakes adjustments first for all non-cash items, and then adjusts for allcash-based transactions not included in net income. Retrieved October 3 , 2 8, from http://www.iasb.org/Home.htmWild, J. Itwould lower reported earnings to a net after tax basis as in GAAP tobalance the retained earnings account, which would include deferred tax.Capital expenditures Capital expenditures are adjusted to reflect the disposition and cashreceived from the sale of assets.Financing activities Financing activities reflect the sale of shares for £5 million and therepayment of outstanding long debt in the amount of $3 million and theactual payment of £6 million in dividends from the prior year. > Decrease in non-cash current assets are added to net income > Increase in non-cash current asset are subtracted from net income > Increase in current liabilities are added to net income > Decrease in current liabilities are subtracted from net income > Expenses with no cash outflows are added back to net income > Revenues with no cash inflows are subtracted from net income (depreciation expense is the only operating item that has no effect on cash flows in the period) > Non-operating losses are added back to net income > Non-operating gains are subtracted from net income (Wild, 2 7)CommentsAcquisitions Buildings increased by £1 to £2 from £1 . It is clear that new machines for this amount werepurchasedDepreciation Depreciation includes both building and equipment. The objectives are presumably very similar but itcan be argued that European Standard offer greater facility in concealinginformation in terms of presentation. Welcome toIASB.org. Obviously, a buildingwas purchased for £1 during the year. Fundamental Accounting Principles (18th ed.). (2 8, October 2 ). There are conflictsbetween GAAP FASB (Financial Accounting Standards Board) or USA standardsand European IASB (International Accounting Standard board) primarily interms of presentations. (2 7). Thismethod converts accrual-basis net income (loss) into cash flow by using aseries of additions and deductions. The elimination of theoverdraft and the development of a positive balance of £29 million actuallyrepresented a swing of £41 million in the cash position of the company.Taxes paid Taxes paid for the purpose of the cash flow statement are the actualpayments made on the prior year as this years tax has no cash effect. Running head: ABC CASE STUDYCommentsABC Case Study ProjectYour NameYour UniversityCommentsABC Case Study ProjectIndirect methodThe indirect method uses net-income before tax and dividends as a startingpoint. (2 7).
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