Question
Dear FASB: Why does the cash flow statement do everything my old accounting instructors deducted me for? When I took accounting in college, gains and
Dear FASB: Why does the cash flow statement do everything my old accounting instructors deducted me for? When I took accounting in college, gains and losses were measured by the difference between what was received in disposal and the book value of the item. When I review cash flow statements, the total proceeds is listed as a gain on the cash flow statement in the investing activity section. For example, lets assume that XYZ Industries has an automobile with a book value of $1,600. It then sells this automobile to ABC for $2,000. The income statement would report a gain of $400, yet the cash flow statement would report a gain of $2,000. What gives? Isnt accounting supposed to be consistent in its treatment of transactions? Another item that is confusing is depreciation. Its clearly listed in the income statement as an expense, yet it doesnt appear in the body of the cash flow statement. What happens to the cash set aside to replace the asset when it becomes unproductive? If the cash flow statement doesnt report this fund, how can I, a potential stockholder, know how effectively management is providing for replacement of productive assets? Sincerely, Cash Flushed
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started