Accounting Study Set 8

Business

Quiz 16 :
Statement of Cash Fows

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Quiz 16 :
Statement of Cash Fows

In the given situation, the financial statements of current fiscal year of SI. Inc., discloses that the net income per share is declined by 10% from last year. The statement of cash flows shows 20% increment of cash flow from operating activities, when compared with last year. The president of the company, Lucas Hunter and the controller of the company, John Jameson decided to show operating cash flow per share on income statement, under earnings per share to comfort their creditors. The income statement shows only net income or net loss for the year ended along with earnings per share. The statement of cash flows of a firm shows cash flow from operating activities, investing activities and financing activities But in the given situation President and controller decision to show operating cash flow per share on income statement, it is a misrepresentation and misleading of financial statements and it is unethical and not in professional manner, as it may influence the decisions of users of the financial statements and put the company in bad situation by financially as well as socially.

1. The principal disadvantage of the direct method is that the data may not be readily available in the accounting records and, thus, cost more to obtain.

It is given that Continental Airlines Inc. reported a net loss of $ 471 million from operations on its income statement. On its statement of cash flows, it reported $ 1,241 million of cash flows from operations. In income statement, all expenses incurred during the year whether paid in cash or not will be deducted from the revenues earned during the year whether received in cash or not. Whereas in the statement of cash flows, only cash payments and cash receipts during the year are to be considered for ascertaining cash flow from operating activities. Therefore, Continental Airlines Inc. reported net loss on income statement and positive cash flows in statement of cash flows.