[jeff]

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Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

Does anyone have a good way to remember when to add/subtract from net income for the indirect method? Add decreases in assets, increases in liabilities, loss, bad debt expense, depreciation/amortization expense and deduct increase in assets, decreases in liabilities, gaims, undistributed income, and amortization of bond premium. Having trouble finding a good way to remember this.

[Anonymous]

I would just disregard the word increases or decreases because I get headache turning my head left and right.

All I have to remember all the additions and deductions from the indirect method.

Additions: DAD_PAL

D – Depr Exp

A – Amtzn of BID>Bond Discount, Intangibles, Deferred Charges

D – Deferred Tax Liabilities; Dividend Received

P – Payables

A – Accrued Liab

L – Losses on CIS>Investment in Cap. Stock using Eq. Method; Impairment; Sale of PPE

Deductions: PAIRInG

P – Prepaid Expenses

A – Amtzn of Bond Premium

I – Income on Investment in Capital Stock Using Eq. Method

R – Receivables

I – Inventory

n

G – Gain on Sale of PPE

If it's a decrease let's say in payables, {since it's an addition item}, I would reverse it. It should be minus. Same goes for receivables. If it's decrease {since it's a deduction item}, it should be a plus.

I don't know if that makes sense to you. But that's just how I talk to my conscience.

[Anonymous]

I would just disregard the word increases or decreases because I get headache turning my head left and right.

All I have to remember all the additions and deductions from the indirect method.

Additions: DAD_PAL

D – Depr Exp

A – Amtzn of BID>Bond Discount, Intangibles, Deferred Charges

D – Deferred Tax Liabilities; Dividend Received

P – Payables

A – Accrued Liab

L – Losses on CIS>Investment in Cap. Stock using Eq. Method; Impairment; Sale of PPE

Deductions: PAIRInG

P – Prepaid Expenses

A – Amtzn of Bond Premium

I – Income on Investment in Capital Stock Using Eq. Method

R – Receivables

I – Inventory

n

G – Gain on Sale of PPE

If it's a decrease let's say in payables, {since it's an addition item}, I would reverse it. It should be minus. Same goes for receivables. If it's decrease {since it's a deduction item}, it should be a plus.

I don't know if that makes sense to you. But that's just how I talk to my conscience.

[Anonymous]

CPAMommyof3 – I don't for this, sorry. I get confused when assigning rules to assets and liabilities because they can be different. I just go item by item an ask was this included as a revenue or expense? Was there a cash inflow or outflow that didn't hit net income?

So for accounts receivable I look at (if this is all you were given):

Beg A/R: 100,000

End A/R: 200,000

So there's $100,000 of non cash income included in net income, let's get it the heck out of there. You could have in the same problem (if this is all you were given):

Beg Allowance for Doubtful Accounts: 1,000

End Allowance for Doubtful Accounts: 2,000

So there's $1,000 of non cash expenses reducing net income, let's get it back in here.

That's basically how I go about it. I talk in my head as the example reads, too lol. It's keeps me sane.

[Anonymous]

CPAMommyof3 – I don't for this, sorry. I get confused when assigning rules to assets and liabilities because they can be different. I just go item by item an ask was this included as a revenue or expense? Was there a cash inflow or outflow that didn't hit net income?

So for accounts receivable I look at (if this is all you were given):

Beg A/R: 100,000

End A/R: 200,000

So there's $100,000 of non cash income included in net income, let's get it the heck out of there. You could have in the same problem (if this is all you were given):

Beg Allowance for Doubtful Accounts: 1,000

End Allowance for Doubtful Accounts: 2,000

So there's $1,000 of non cash expenses reducing net income, let's get it back in here.

That's basically how I go about it. I talk in my head as the example reads, too lol. It's keeps me sane.

[Anonymous]

Yes it does! Thank you! Can I post that in the Q2 thread? I swear I won't claim credit for it.

[Anonymous]

Yes it does! Thank you! Can I post that in the Q2 thread? I swear I won't claim credit for it.

[smsingla]

@Amay, I think even under USGAAP, answer will be same. All other expenses will be expensed

REG 81
BEC 74,65,78
FAR 79
AUD 85 DONE!!!

[smsingla]

@Amay, I think even under USGAAP, answer will be same. All other expenses will be expensed

REG 81
BEC 74,65,78
FAR 79
AUD 85 DONE!!!

[Anonymous]

CPAMom talking to me?

[Anonymous]

CPAMom talking to me?

[Amay]

I did some research on the site cause I was having the same problem and found that some people found this useful (although the best method is to think through the answer and understand the concept, not just try to memorize it):

Normal debit accounts are always opposite: Increases in debit accounts are subtracted from NI and vice versa

Normal credit accounts are always the same: Increases in credit accounts are added to NI and vice versa.

Although I am realizing this may only work for B/S accounts…so not too sure about following that.

The way I try to think of it is that you are going from accrual to cash basis so you have to adjust for all non-cash items. Depreciation expense for example is a non-cash item that is included in NI. In order to prepare your CFS, you need to add it back to NI.

Cash flow statement is just on of those that always baffles me…

BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀

*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂

[Amay]

I did some research on the site cause I was having the same problem and found that some people found this useful (although the best method is to think through the answer and understand the concept, not just try to memorize it):

Normal debit accounts are always opposite: Increases in debit accounts are subtracted from NI and vice versa

Normal credit accounts are always the same: Increases in credit accounts are added to NI and vice versa.

Although I am realizing this may only work for B/S accounts…so not too sure about following that.

The way I try to think of it is that you are going from accrual to cash basis so you have to adjust for all non-cash items. Depreciation expense for example is a non-cash item that is included in NI. In order to prepare your CFS, you need to add it back to NI.

Cash flow statement is just on of those that always baffles me…

BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀

*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂

[smsingla]

@CPAmommy, basically u add any non-cash expenses and subtract any non-cash revenues.

REG 81
BEC 74,65,78
FAR 79
AUD 85 DONE!!!

[smsingla]

@CPAmommy, basically u add any non-cash expenses and subtract any non-cash revenues.

REG 81
BEC 74,65,78
FAR 79
AUD 85 DONE!!!

[Author]

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