[Anonymous]

Hello Peeps,

I am currently in the process of studying for FAR. That said, I am going through the cash flow material an cannot get ky mind to go from accrual to cash. Could someone please provide guidance. Perhaps provide the example of a liability, like a/p.

Lastly, is it normal to feel overwhelmed and lost with FAR?

Thank you for your time.

[LKD CPA]

CPA 1 Day: Cash flows are the devil. I had a difficult time with this concept too. In fact, the 2nd time I sat for FAR, the first thing I did was write the following on my dry erase thingy: “Cash flow: Did cash go out the door? Did cash come in?” This is exactly the way you have to look at it. For every line item, ask yourself “Did cash really go out the door?” Perfect example is an accrual or depreciation. Did cash really go out the door? NO! You are just adjusting the books to make your net worth realistic, so add those back…the cash hasn't really left. Now for receivables, did cash really come in? NO! You are just expecting them to come in, so subtract those, they haven't really come in yet.

As far as what goes where, the following is from a post from CPAMan under another cash flow statement thread and it helped me get a better grasp: “Income Statement accounts go under Operating Activities. Asset accounts go under Investing Activities. And Liabilities and Stockholder's Equity accounts go under Financing activities. And of course, you should be familiar with the differences between the Indirect and Direct Methods. The difference only lies in the Operating Activities section.”

Hope this helps!

FAR: 74, 83
REG: 76
BEC: 77
AUD: 89

[LKD CPA]

Oh and one more thing, “is it normal to feel overwhelmed and lost with FAR?” YES, just practice, practice, practice, and study, study, study. If there is a concept you just aren't grasping from whatever review material you're using, don't be afraid to go to YouTube and search for it. I have found there are a lot of great videos out there where topics are explained in different words and it really helps things click!

FAR: 74, 83
REG: 76
BEC: 77
AUD: 89

[knotworthy91]

An easy way to complete accrual net income to net cash from operating problems, or even cash to accrual is as follows…

Accrual net income

+/- non-cash assets

+/- non-cash liabilities and equity

=

Net cash from operating activities

Non-cash assets have an inverse relationship with cash flows. In other words, if the balance of a non-cash asset account (accounts receiveable or prepaid expense) increases during the year, that increase is deducted from net income to arrive at cash income. Vice versa, if the noncash asset account decreases, add the amount of the decrease to accrual income in the equation.

Non-cash equity (depreciation expense) and liability (accounts payable) accounts have a direct relationship with cash flows. If there's an increase, add. If there's a decrease, subtract.

If you commit the formula to memory; eventually it enables you to think about cash flows logically and answering those types of questions will become second nature. Good luck!!

AUD 91
BEC 81
FAR 80
REG 4/20/15

[Tux]

My way of remembering cash to accrual is this:

Notice the pattern of the pluses and minuses –

It works EVERY time.

Cash basis income

+ Beginning A/R

– Ending A/R

– Beginning Prepaid Income

+ Ending Prepaid income

___________________

Accrual basis income

You can apply the same pattern to expenses –

Using A/P instead of A/R, and prepaid expenses instead of prepaid income.

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[Tux]

Moderator – PLEASE delete my previous post above.

I entered the pluses and minuses in the wrong place.

I don't want to confuse anyone.

I will repost using the correct symbols.

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[Tux]

My way of remembering cash to accrual is this:

Notice the pattern of the pluses and minuses – “minus, plus, plus, minus”

It works EVERY time.

Cash basis income

– Beginning A/R

+ Ending A/R

+ Beginning Prepaid Income

– Ending Prepaid income

___________________

Accrual basis income

You can apply the same pattern to expenses –

Using A/P instead of A/R, and prepaid expenses instead of prepaid income.

FAR - 86 - 2/27/14
AUD - 75 - 5/29/14
BEC - 80 - 8/31/14
REG - 89 - 2/27/15
Praise Jesus! I'm done!!

Study resources:
Becker
Wiley test bank

[ocboa]

always apprec others input on computing this

[mt3130]

Just follow the money. An increase in AR is a decrease in cash, because you haven't been paid. An increase in AP is an increase in cash, because you didn't pay cash when you bought something.

REG - 90 (08/2014) - Study Time = 6 days
FAR - 89 (10/2014) - Study Time = 9 days
BEC - 83 (11/2014) - Study Time = 4 days
AUD - 89 (01/2015) - Study Time = 2 days

Final score released - 2/4/15
Application mailed - 2/5/15
Licensed CPA - 2/12/15

[fuzyfro89]

Others already explained the logic, but I'll provide 4 items that you can memorize and start practicing immediately. Hopefully, as you work practice questions and simulations (e.g. generating the operating cash flow section), you'll start to get the hang of it. It seems strange at first, but gets easier as you get the hang of things.

From accrual to cash:

1) increase in an asset -> decrease in cash

2) decrease in a liability –> decrease in cash

3) increase in a liability –> increase in cash

4) decrease in an asset –> increase in cash

explained in words:

1) you took credit from a customer, or bought a machine. You are delaying receiving cash or paid out cash… either way, >>cash is lower

2) if liabilities go down, you paid someone something that you owed… >>cash is lower

3) you are delaying paying someone, or just took on a debt to someone, they gave you some asset that you'll repay later… >> cash goes up

4) you sold an asset, you used up an asset (and presumably not for free)… >> cash goes up

[kleon52]

A = L + E

Cash + Other Assets = Liabilities + Equity

Cash = Liabilities + Equities – Other assets

D = Change in (item)

To go from Accrural to cash (you're going to need this in the cashflow statement, guaranteed sim on cpa exam)

Sales Formula:

D Cash = D liabilities + D Equities – D Other Assets

Expenses Formula:

D Cash = -D liabilities – D Equities + D other Assets

Other assets are your a/r, inventory, etc

Note that if the change in other assets is postive, it will be -D Other Assets

If the change in other assets is negative, it will be +D other assets

Sales (accrural)

+D Liabilities

+D SE

-D Other assets

= Sales Cash Basis

Expense (Cogs(

-D Liabilities

-D SE

+D Other Assets

= Expense Cash Basis

REG: 80
AUD: 82
BEC: 83
FAR: 83
Finished Feb 2015, 5-6months

Ninja MCQ for AUD, BEC, & FAR

[Author]

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