The Statements of Cash Flow Reports
Essay Preview: The Statements of Cash Flow Reports
Report this essay
In week four we have discovered how to prepare a statement of cash flow by using both direct and indirect methods. We have also discussed how we would apply ratio, vertical, and horizontal analysis to financial statements. We have also learned how to prepare journal entries associated with the issuance of preferred and common stocks and the declaration and payments of dividends. We talked about how to identify situations that could lead to unethical accounting practices. We also talked about the effect of unethical behavior and Sarbanes Oxley act on financial statements.
The statements of cash flow reports the cash receipts, payment and net change in cash that would result from operating, investing and financial activities. Companies will have to convert net income from the accrual basis to a cash basis. We think that it can be converted using the indirect or the direct methods. We think that both methods however have at the end of the day the same end results. the indirect method would adjust an item that does not have an effect on cash. The most common method used in companies would be the indirect method. The direct method is a method that uses operating cash receipts and payments. FASB would favor the direct method. The different ratios like liquidity, profitability and solvency as well as horizontal and the vertical analysis would give creditors a strong idea of the health of the company. Balance sheets and also income statements are also very important tools since these are what are used to present the information on calculating these analyses. Ratios have also provided some clues to an underlying problem in some companies and would be able to flush the big problems out and help bring them to the light.
We think that journal entries are associated with the issuance of preferred and common stocks are necessary for the preparation of the balance sheets. The preferred or common stock would mean that some type of asset whether it be cash, land or equipment have to be claimed by the company. It is also important that the investors try to find out how much equity is in the company through the stock purchase and how much it can generate by sales or operations or productions in the company. A company has more stock equity than cash flow which would mean that the company would be in danger.
In conclusion team D has learned many things during week four. We have discovered how we can prepare a statement of cash flow by using either direct or indirect methods. We have also learned how to apply ratios, vertical, and horizontal analysis to financial statements. We have also gained knowledge on how to prepare journal entries associated with issuance of preferred and common stocks and the declaration and payment of dividends. In the end we know how to identify any situations that would lead to any unethical accounting practices. The final part we have learned this we is that the debate of the effect of unethical behavior and the