The purpose of this assessment is to identify the impact of different forms of e
ID: 2463728 • Letter: T
Question
The purpose of this assessment is to identify the impact of different forms of earning, expenses, and losses on the cash flow of an organization. This discussion has two parts; complete them one at a time, in separate responses, starting with Part 1.
Part 1: Identify and classify whether the given items increase, decrease, or have no impact on cash flows:
Depreciation
Tax payments
Cash receipts from renters
Amortization
Depletion
Operating expenses
Salaries
Cash receipt from interest
Bad debts
Loss from an asset sale
Cash receipt from dividends
Loss from retirement of notes payable
Payment to suppliers
Cash receipt from customers
Interest payment
After you have done so, compare your list to the list created by one of your peers and provide a rationale for your selection. Based on your selection, discuss which items on your list you found difficult to identify and classify. Apart from seeking guidance from your instructor, what are the other ways you think can help you understand the concept of cash flow?
Part 2: Discuss how the direct method differs from the indirect method when preparing the operating activities section of a statement of cash flows. Now assume that Harrenhal Inc. experienced a loss on the disposal of long-term assets. How would this be reported in the operating activities section of the statement of cash flows when using the indirect method and why?
Explanation / Answer
Part 1: Identify and classify whether the given items increase, decrease, or have no impact on cash flows:
Items
Increase/
Decrease/
No impact
Depreciation
Increase
Tax payments
Decrease
Cash receipts from renters
Increase
Amortization
No impact
Depletion
No impact
Operating expenses
Decrease
Salaries
Decrease
Cash receipt from interest
Increase
Bad debts
No impact
Loss from an asset sale
Decrease
Cash receipt from dividends
Increase
Loss from retirement of notes payable
Decrease
Payment to suppliers
Decrease
Cash receipt from customers
Increase
Interest payment
Decrease
Part-2:
There is no difference between the indirect method and the direct method in the Financing and investing activities. The difference between the direct and indirect method absorb in the cash flows from the operating activities.
Under the direct method, the cash flows from operating activities include the amounts for lines such as cash paid to suppliers and cash received from customers. In distinction, the indirect method will show net income track by the adjustments needed to convert the total net income to the cash amount from operating activities.
Disposal of long term assets reported in operating activities under the indirect method. This amount should be deducted from operating activities.
Items
Increase/
Decrease/
No impact
Depreciation
Increase
Tax payments
Decrease
Cash receipts from renters
Increase
Amortization
No impact
Depletion
No impact
Operating expenses
Decrease
Salaries
Decrease
Cash receipt from interest
Increase
Bad debts
No impact
Loss from an asset sale
Decrease
Cash receipt from dividends
Increase
Loss from retirement of notes payable
Decrease
Payment to suppliers
Decrease
Cash receipt from customers
Increase
Interest payment
Decrease
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