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Discuss the interrelationship of the cash flow statement to the other financial statements. In your discussion comment and explain operating activities, investing activities, and financing activities. What is the difference between an indirect and a direct cash flow statement? Which is GAAP?

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Post 1- sylvan

In the world of Accounting, there are different types of reporting.There is a cash flow statement, balance sheet, and income statement, also known as the profit and loss statement.The balance sheet lists the company’s assets, which is what a company owns that is of value.Assets consists of inventory, accounts receivable, cash investments, equipment, and land.It also lists the liabilities, which are amounts owed by the company.Accounts payable is an example of a liability.A liability can also be described as goods and services a company purchases on credit.Essentially, an asset is what a company owns, and a liability is what a company owes.The balance sheet also lists the owner’s equity.This is the company’s assets minus the liabilities.The total is the company’s book value.The balance sheet gives the company’s financial position.The income statement lists the company’s financial performance.This consists of the revenues and expenses.The cash flows show the cash that comes in and goes out of a company or organization.The interrelationship of the cash flows statement to the other financial statement is that the cash flows contains information from the balance sheet and income statement to determine if the company is in a good financial position.The difference between an indirect and a direct cash flow statement is the operating activities section, which is the top section of the statement.This is how the direct method is structured.The indirect method is when net income is adjusted by changing it to cash basis from accrual.This consists of fixed assets, amortization, and depreciation.GAAP stands for generally accepted accounting principles.These are the standards and procedures companies must adhere to when financial statements are composed.The financial statements that are required to be reported per GAAP are cash flow statement, income statement, and balance sheet.

Post 2 – Shannon

Cash flow statements explains what goes in, what goes out, shows how much money the company has in hand, and is shown on the balance sheet. When all the statements come together, the result is where the company remains in their financial aspect.

Operating activities falls into five categories that deal with each other directly in different steps. These categories are sales, service, manufacturing, distribution, and marketing. These things provide the main cash flow and plays a pivotal role in deciding the company’s success. Hence the phrase, “Money talks, bull**** walks.” (excuse the language, but it is a widely known phrase everyone is familiar with). On cash flow statements, these activities are recognized as accounts payable & receivable, excess in inventory, inventory shortages, certain debts, and any differences noticed in daily trading operations (working capital).

Investing activities, also on the cash flow statements, provides the amount of money disbursed or collected for a company’s investments and assets. Investing activities call for three separate statements such as cash flow, income sheets, and balance sheets. Income statements covers money brought in and money spent, balance sheets cover the money owed out and the things bringing money in, and the cfs (cash flow statement) shows how the two connect by what goes in or out through all activities.

Financing activities are the external things that increases a company’s money/assets and reimburses investors. It also represents where a company stands in their financial aspect.

The difference between a direct and indirect cash flow statement involves the cash flow from operating activities (What is the difference…, n.d.). Direct method incorporates collecting money from customers and paying the suppliers. The indirect method shows the money amount after converting income into a cash amount.

GAAP is Generally Accepted Accounting Principles. They are rules that absolutely must be followed when a company collates their financial statements. If they aren’t done to meet the standards, it can and will result in major consequences for the company.

 

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THE ACTIVITY

• Read the following scenario.

Over the past many years, there has been ongoing debate raging in Washington, D.C. regarding the U.S. federal budget. As the U.S. deficit increases, some argue that cutting government spending should be a key priority of our lawmakers. Others favor more gradual decreases, such as raising taxes or implementing a proposed freeze on discretionary spending. Either way, as an economic adviser to the President, you have been tasked with presenting a proposal that addresses how to fix a current budget gap of $300 billion dollars in an effort to appease both sides of this debate.

A-Using the budget below, decide what options you will suggest cutting or implementing for your presentation to the president. Remember that these actions must cover a budget gap of $300 billion. When you have reached your target, save your results—you will need to refer back to them to answer your assessment questions. ( Please keep in mind that these changes could seriously affect citizens’ daily lives. Also keep in mind people may be so angered by the changes that they will take action to prevent the president’s reelection, thus putting you out of a job). Please answer all questions (8) related to previous activity …..questions are after the budget below:

DOMESTIC PROGRAMS AND FOREIGN AID	Cut foreign aid in half	$17 billion
	Eliminate farm subsidies: Opponents believe subsidies help large businesses at the expense of small farms. Supporters believe subsidies protect American agriculture.	$14 billion
	Cut pay of civilian federal workers by 5 percent	$14 billion
	Reduce the federal workforce by 10%: This would eliminate approximately 200,000 federal jobs.	$12 billion
	Other cuts to the federal government: This includes reduced funds for the Smithsonian and the National Park Service, and closing the Office of Safe and Drug-Free Schools.	$30 billion
	Cut aid to states by 5%: This pressure states to cut funding for schools, police, and other services.	$29 billion
MILITARY	Reduce nuclear arsenal and space spending: This would cut the number of nuclear warheads and end the “Star Wars” missile defense program.	$19 billion
	Reduce military to pre–Iraq War size and further reduce troops in Asia and Europe	$25 billion
	Cancel or delay some weapons programs: This would cancel some expensive purchases identified by the Sustainable Defense Task Force as possible cuts.	$19 billion
HEALTHCARE	Enact medical malpractice reform: This option would begin to reduce the chances of large malpractice verdicts, which supporters believe would also check rising medical costs. Opponents say it could reduce doctors’ incentives to avoid errors.	$ 8 billion
	Increase the Medicare eligibility age to 68	$ 8 billion
	Raise the Social Security retirement age to 68: This would rise from the currently planned 67, encouraging people to work longer.	$ 13 billion
EXISTING TAXES	Return the estate tax to Clinton-era levels: Those passing on an estate worth more than $1 million to their heirs would have portions of those estates taxed.	$ 50 billion
	End Bush tax cuts for income above $250,000 a year	$ 54 billion
	End Bush tax cuts for income below $250,000 a year	$ 172 billion
	Payroll tax increase for high earners: Those making over the current ceiling of $106,000 would have to contribute more to Social Security and Medicare.	$ 50 billion
NEW TAXES	Millionaire’s tax on income above $1 million	$ 50 billion
	National sales tax: This would add a tax of 5 cents on every dollar for most purchases.	$ 41 billion
	Carbon tax: This option would tax carbon emissions, which scientists believe contribute to global warming.	$ 40 billion
	Bank tax: This would tax banks based on their sizes and the amount of risk they take.	$ 73 billion
Total gap covered by your budget plan		$_________________

1-What is your final plan to present to the president? What changes did you decide to implement?

2-Please explain why you choose the options that you did

3-How will your decisions affect the elderly , the poor , the rich and national security if implemented?

4-Was covering the hypothetical budget gap more or less than you expected? Please explain

5-Which of your decisions might be perceived as politically motivated? Why?

6-What are the trades-offs of preserving some programs while protecting others?

7-How do your decisions result in a marginal benefit to society so that they can outweigh the marginal cost to society?

8-Did doing this exercise change your feelings about the budget debate in Washington? If so, how? If not, why not?

 

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