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Financial Accounting

Statement of Cash Flows-Direct Method vs Indirect Method

Written by Bob Steele CPA - Accounting Instruction, Help & How To on . Leave a comment

Statement of cash flows direct method vs indirect method will compare and contrast the direct method and indirect method forms of the cash flow statement. When comparing the direct and indirect method we are focusing in on the cash flows from operation section of the statement of cash flows as opposed to the financing or investing sections. In other words, the financing and investing sections will remain the same under either method. The direct method can be thought of as reworking the income statement line by line, adjusting each line from an accrual basis to a cash basis. The direct method makes intuitive seance and and is easy to explain to readers but is the less used method. One reason is that the indirect method is often required even if the direct method is used. The indirect method provides a kind of reconciliation between net income on an accrual method and net income on a cash method or cash provided by operating activities. The bottom line should be the same using either the direct or indirect method.
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Financial Accounting

Statement of Cash Flow Direct Method – Make Statement of Cash Flows Using Direct Method

Written by Bob Steele CPA - Accounting Instruction, Help & How To on . Leave a comment

Statement of cash flows direct method will construct the statement o flows using the direct method. The direct method is less common then the indirect method for multiple reasons. One reason the indirect method is more common is that it is often required weather we use the direct method or not. In other words, we often have to use a an indirect method calculation even if we include the direct method. The indirect method provides a reconciliation between net income and cash provided by operations. The direct method generally makes more intuitive scene however. The difference between the direct method and the indirect method is found on the cash flows from operations. In other words, the cash flows from investing activities and financing activities will be the same when using either direct or indirect methods. The direct method is like taking the income statement accounts and converting each account from an accrual method to a cash method.
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Financial Accounting

Corporation Comp Prob Receive Cash on Account -100 Debit Cash Credit Accounts Receivable

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Corporation comprehensive problem recording the journal entry for receiving cash on account. We will record the journal entry to the general journal, post it to the general ledger, and create the trial balance from the general ledger. We will debit cash and credit accounts payable .
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Financial Accounting

Bond Price Present Value Tables – Present Value (PV) Calculations

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Present value calculations using bond price will use present value tables to calculate the market value of bond price. Present value calculations can be done multiple ways either with tables, with algebra, with Excel, or with financial calculators. Each format for calculating present value has its pros and cons. It is helpful to know that each form of calculating present value is designed to get at the same thing so that we can recognize present value calculations when we see them. Calculating bond prices is a perfect example for present value calculations because it include two present value streams, a present value of one, and present value of an annuity.
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Financial Accounting

Bond Present Value Excel – PV Calculations Using Bond Price Example

Written by Bob Steele CPA - Accounting Instruction, Help & How To on . Leave a comment

Use Excel to calculate present value PV using bond price as an example. There are many ways to calculate the present value. We can use present value tables, a financial calculator, math and formulas, or Excel. Each method has its pros and cons but it is important to know that are all doing much the same thing, leading to the same outcome. Excel has many advantages including formatting the present value calculations in different ways to pull more information. Calculating the bond price is a common example for present value calculations because bond prices have two separate cash flows, one being the present value of one and the other being an annuity. The two present value requirements of bonds are perfect for thinking about the main two present value types of calculations.
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Financial Accounting

Premium Amortization Effective Method – Effective Method Calculation

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We will calculate the amortization of a bond premium using the effective method the preferred method under GAAP. The effective method can be compared to the straight line method. Under the straight line method we divide the premium by the number of payments and reduce it by an even amount each period. Under the effective method we calculate the amount allocated to interest each period using the carrying value and the market interest rate..
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Financial Accounting

Notes Payable Current vs. Non Current – Financial Statements

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Financial statement, balance sheet, liabilities section needs to be broken out between current liabilities and non current liabilities. The concepts is simple; the practice less simple. In concepts, current liabilities are those that will be due within a year. Given this definition we should be able to go through are liabilities, determine which are due in a year, and put them in the current liabilities section. The problem is that some liabilities have a current and long term component. Notes payable or loans payable set up as installment notes often have a current and long term component. We will need to use amortization table do break out the current and long term portion of these notes. We will also discuss different options for reporting installments notes.
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Financial Accounting

Partnership Comp Prob Purchase Insurance – Journal Entry to Purchase Insurance

Written by Bob Steele CPA - Accounting Instruction, Help & How To on . Leave a comment

comprehensive problem purchase of insurance where we will enter the journal entry related to the purchase of insurance. We will journalize the journal entry to the general journal, post the accounting transaction to the general ledger, and create the trial balance from the general ledger. The journal entry will debit prepaid insurance, an asset, and credit cash. We do not debit insurance expense because we have not yet consumed the insurance and therefore should not record an expense according to the matching principle, one of the core accrual principles related to when to record expenses. We will record insurance expense at the end of the period with the use of adjusting entries, debiting insurance expense and crediting prepaid insurance, increasing the expense and decreasing the asset.
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Financial Accounting

Notes Payable Adjusting Entry – Adjusting Journal Entry for Notes Payable

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Adjusting journal entry for notes payable will discuss options for setting up a system for recording notes payable in an accounting system. Adjusting entries are entries made at the end of an accounting period, at the end of a month or year. Adjusting entries are planned entries. When entering payments for an installment not we have some options to make the system easier. To keep the loan balance correct at all times we should record interest and principal portions of each payment, but this requires a different journal entry each payment. If we want to standardize the payment we could allow the accounting department to credit cash and debit the loan payable, the result being that we allocate too much to loan payable and do not record interest expense at the time of payment. The adjusting entry can then be used to adjust the loan and the interest expense to the proper amount.
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