Misclassification of a financing activity

Assignment Help Accounting Basics

Reference no: EM13756974

Anthony wrote: "the average investor should be checking out the cash flows statement in general to understand the general trend and solidity of a company. Accrual basis data doesn't give nearly as much foresight into future projections of how a company". As indicated in Anthony's response, the statement of cash flows shows the uses and sources of: cash during for the operating, investing, and financing activities of a company. The balance sheet and income statement are prepared using the accrual basis of accounting.

The statement above regarding the investor's assessment of the general trend and solidity of a company is assuming that all cash transactions are correctly classified as operating, investing or financing activities on the statement of cash flows. Take a look at the ethics case presented in BYP 12-9 that appears in the Broadening Your Perspective section at the end of Chapter 12 in the WileyPLUS Readings or on page 683 in the eBook version. The ethics case provides additional information than presented below, which are the key points of the case.

The board policy requires the statement of cash flows for Templeton Automotive shows that net cash from operating activities exceeds $1 million dollars. However, the net cash from operating activities amounts to $970,000. The president of the company asks Nick, the controller if there is any way to increase the operating cash flows by $30,000 or more.

"Upon close scrutiny of the statement of cash flows, Nick concludes that he can get the operating cash flows above $1 million by reclassifying a $60,000, 2-year note payable listed in the financing activities section as "Proceeds from bank loan--$60,000." He will report the note instead as "Increase in payables--$60,000" and treat it as an adjustment of net income in the operating activities section." (Kimmel, 2013)

Class, how does the misclassification of a financing activity as an operating activity on the statement of cash flows impact the decision making process of an external user as to the financial status of the company?

Reference

Kimmel, P. D. (2013). Financial accounting: Tools for business decision making. Retrieved from University of Phoenix eBook Collection.

Reference no: EM13756974

Questions Cloud

Was the progressive era an era of progress : Was the Progressive Era an era of progress?

Business tends in china : In China, business tends to be more personal. Over the last four years, the weakened U.S. economy has had a devastating impact on small business

Manager determine the number of each biscuit to make : The franchise has 6 hours of labor available and has contracted to get 30 lbs. of sausage and 30 lbs. of ham. The manager also plans on purchasing 16 lbs. of flour. Profit on a sausage biscuit is $.60 and $.50 on a ham biscuit. Create a model to help..

Why was the crusades important : Why was the crusades important?

Misclassification of a financing activity : Class, how does the misclassification of a financing activity as an operating activity on the statement of cash flows impact the decision making process of an external user as to the financial status of the company?

What do you think of james monroes argument : What do you think of James Monroe's argument? What about it does or does not make sense or seem right to you about it?

The marketing team from mi casa front porch restaurant : The marketing team from Mi Casa Front Porch Restaurant is looking to promote the restaurant on the internet. They want to provide a realistic view of ranges for average bill for a party of 2 for lunch and dinner. They have gathered the following data..

How lincolns position on approval of mexican-american war : How does Lincoln's position on approval and funding of the Mexican-American War mirror that of many Democrats regarding the Iraq war that began in 2003?

Class frequency relative frequency : Q1: Fill in the missing components of the following frequency distribution constructed for a sample size of 50:Class Frequency Relative frequency Cumulative relative frequency

User Account

All Pages