[mena je twa]

Hey all,

I am doing some cash flow analysis at work and i want to check and see as to those who are using yaeger review course.

I used Yaeger and i know Cindy had a very good technique on Indirect method of cash flow. I know she did a T – account and did some journal entries and it was awesome, she explained if there was Increase in AP, what would hapen to the account balance etc etc.with the use of arrows etc.

Can someone please write down in few lines, Cindy’s thought process as to how she would figure out if its a add or subtraact if it s a increase in AP, AR, Inventories etc.

Thankyou all for your help.,

Licensed CPA, Texas - 2012

[nolifecpa]

she used the “fake cash” method

if there is an increase in asset, how do you increase an asset? debit asset credit fake cash (cash outflow)

if there is an increase in liab, how do you increase a liab? credit liab debit fake cash (cash inflow)

REG-65,71,74,73,70,74,79
BEC-60's,60's,69,71,76*,78
FAR-67,66,65,79
AUD-54,60's,65,83*,69,80
*expired

DONE

[J]

I use this same method to teach my students when doing the SCF chapter. It's an excellent tool, no having to mess around with multiple T-accounts, and it works as well when doing cash to accrual basis or accrual to cash basis questions. The only drawback is that if you're not good with journal entries to begin with, this might not do the trick for you.

The idea is that you can solve for cash inflows or outflows if you have the accrual basis amount from the income statement along with the associated balance sheet account(s). Remember, the SCF is just reverting back to the cash basis of accounting. Let's do a simple example. Say that you have recorded accrual basis sales (from the income statement) of $500,000. You also know that beginning A/R was $10,000 and ending A/R was $25,000 (both from the current year and previous year balance sheet). You can then figure out how much cash was collected from customers during the year by plugging “fake cash” in the journal entry:

Db. Cash XXXXX

Db. A/R 15,000 (to increase from 10,000 to 25,000)

Db. Sales 500,000

So, Cash would be debited for 485,000, which is the amount collected from customers.

This example would be for the direct method of operating activities, but it also shows why an increase in A/R means a cash outflow (subtraction as an adjustment to reconcile net income to net cash flows from operating activities) when doing the operating activities using the indirect method.

[LoveEventing]

Generally, I just remember that the direction is opposite for assets and the same for liabilities. So:

Increase asset, decrease cash (outflow)

Increase liability, increase cash (inflow)

BEC - 68, 76
AUD - 90, 91
FAR - 63, 83
REG - 55, 79

FINALLY DONE!

[Author]

Replies