[peko8535]

Lino Co.’s worksheet for the preparation of its Year 2 statement of cash flows included the following:

December 31 January 1

Accounts receivable $ 29,000 $ 23,000

Allowance for uncollectible accounts 1,000 800

Prepaid rent expense 8,200 12,400

Accounts payable 22,400 19,400

Lino’s Year 2 net income is $150,000. What amount should Lino include as net cash provided by operating activities in the statement of cash flows?

Choice “c” is correct. $151,400 net cash provided by operating activities, as follows:

Net income $ 150,000

Increase in A/R (6,000)

Increase in allowance 200

Decrease in prepaid 4,200

Increase in A/P 3,000

$ 151,400

*So this chapter is really getting the best of me (Becker F7). I have no idea when to add or when to subtract operating assets and liablilities. I feel that whenever I read the chapters in Becker, I grasp the material, but when it comes to do the problems I end up doing the damn opposite of what I just learned…..

Becker clearly states that the Cash Flows From Operations = Net Income + Noncash Expenses – Noncash Income + Increase in Operating Liabilities – Increases in Operating Assets.

The $6,000 decrease in A/R in my eyes is a decrease in operating assets, and therefore should be added. ( If we subtract increases, add decreases, correct…?) So why is it being subtracted in this problem? I thought the answer would be $148,600.

So discouraging when you spend hours learning material and the basic concepts still don’t make any sense.

FAR - Passed! 8/23/13 (Becker Self Study and Ninja Audio)
REG - Passed! 7/24/13 (Becker Self Study and Ninja Audio)
AUD - Passed! 8/25/14 (Becker Self Study and Ninja Audio)
BEC - Passed! 11/23/14(Becker Self Study and Ninja Audio)

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[Topsya]

Do you know the “Fake Cash” method? Cindy Simpson teaches it in Yeager CPA Review.

It's a very easy technique which always works for me

https://www.another71.com/cpa-exam-forum/topic/help-on-cash-flows-if-using-yeager-cindy

and

https://www.cpanet.com/cpa_forum/forum_posts.asp?TID=26818&KW=cash+flow

AUD - 90
FAR - 83
BEC - 81
REG - 80
ETHICS - 100

[peko8535]

Never heard of this, but thanks for the links and information! About to check it out!

FAR - Passed! 8/23/13 (Becker Self Study and Ninja Audio)
REG - Passed! 7/24/13 (Becker Self Study and Ninja Audio)
AUD - Passed! 8/25/14 (Becker Self Study and Ninja Audio)
BEC - Passed! 11/23/14(Becker Self Study and Ninja Audio)

Now Gimme my Bonus!!!

[StephAV]

A/R decreased over the year… What has to happen for A/R to decrease? Cash has to come in=positive cash inflow. How much? $6000 positive cash flow.

For the categories, I've decided the easiest way to remember is by remembering what is financing and investing and all else is operating by default. Investing reports purchases and sales of LT investments and fixed assets. Financing reports the issuance and repurchase of the co's own bonds and changes in LT liabilities (borrowing money on a long term basis)

Just think how does this change affect cash. Does this mean cash came in or went out during the period?

At work I do our cash flow statement and I take the the 12/31 balance sheet compared to the current period balance sheet and those differences are inflows or outflows of some combination. Like investments the change is generally due to purchases, sales, g/l. Fixed Asset the difference is depreciation expense, purchases and disposals. We use the indirect method. It starts with our current Net Income (which is the difference between starting and ending equity/FB). Hope this helps… I agree that the way they try to explain the stmt of cash flows in these books is just awful! So confusing!

FAR - 7/13 - 72, 11/13- 74, 2/14- 82!!! Best score ever (for me)!!!
BEC - 1/14 - 75!!! Perfect score! First Pass! YAY!!!
AUD - 8/14 - 80!!!
REG - 5/14 - 72, 10/14 - 66, 1/15 - 78 - DONE FOREVER!!!
I did 5 of the UNA and CPAExcel classes to earn units.

[peko8535]

Ok, so I understand that $6,000 of cash is coming in as a positive inflow. I just don't understand the concept of why positive cash coming in is subtracted from net income?

And using the fake cash method, How does this apply to concepts such as a decrease in deferred taxes payable?

would you debit fake cash credit Taxes payable, this resulting in an increase in cash? Which is wrong because an increase in deferred payables will result in more cash (owing more).

FAR - Passed! 8/23/13 (Becker Self Study and Ninja Audio)
REG - Passed! 7/24/13 (Becker Self Study and Ninja Audio)
AUD - Passed! 8/25/14 (Becker Self Study and Ninja Audio)
BEC - Passed! 11/23/14(Becker Self Study and Ninja Audio)

Now Gimme my Bonus!!!

[Anonymous]

increase A/R. you didnt collect that amount of cash that you could had, therefore it is a deduction.

increases in deferred tax liability, means you didnt USE cash to pay that much amount of tax, therefore an increase of cash.

[Anonymous]

https://i.imgur.com/aNc2wD7.jpg

[peko8535]

@ Derf, but it was a decrease in A/R, not an increase, so why do we subtract this in the problem?

FAR - Passed! 8/23/13 (Becker Self Study and Ninja Audio)
REG - Passed! 7/24/13 (Becker Self Study and Ninja Audio)
AUD - Passed! 8/25/14 (Becker Self Study and Ninja Audio)
BEC - Passed! 11/23/14(Becker Self Study and Ninja Audio)

Now Gimme my Bonus!!!

[peko8535]

Also, which part of the picture that you posted relates to A/R decrease? I am looking at the picture and see that accrual to cash, which I presume we are using for this problem, shows that when incomes are decreased, the account balance goes up. Everything seems reversed to me, and I really appreciate all of the help I have been given, but I still have not made any progress

FAR - Passed! 8/23/13 (Becker Self Study and Ninja Audio)
REG - Passed! 7/24/13 (Becker Self Study and Ninja Audio)
AUD - Passed! 8/25/14 (Becker Self Study and Ninja Audio)
BEC - Passed! 11/23/14(Becker Self Study and Ninja Audio)

Now Gimme my Bonus!!!

[Anonymous]

@peko AR is going from $23k to 29K which is an increase. Therefore the difference is subtracted. Increases in assets are always subtracted, decreases always added back.

Hope this helps!

[peko8535]

I've been looking at this problem all wrong since the start! I thought that it was showing January 1 yr 3 balances and December 31 year 2 balances! This would make a lot of sense of why everything was reversed!! Thanks for the patience and help guys!

FAR - Passed! 8/23/13 (Becker Self Study and Ninja Audio)
REG - Passed! 7/24/13 (Becker Self Study and Ninja Audio)
AUD - Passed! 8/25/14 (Becker Self Study and Ninja Audio)
BEC - Passed! 11/23/14(Becker Self Study and Ninja Audio)

Now Gimme my Bonus!!!

[Author]

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