Please write a 350 word reply to each of these discussion posts using APA format :

Directions:

You are required to reply to 2 other classmates' threads, and each reply must be at least 350 words in length. Your replies should be substantive and add new information concerning the subject matter of your other classmates' cases. Each reply must cite at least2 sources. Acceptable sources include peer-reviewed journal articles, FASB Codification, the textbook, and the Bible.

Running head: CASE 7-5 1 Case 7-5: The Statement of Cash Flows Joshua S. McDonald Liberty University CASE 7-5 2 Case 7-5: The Statement of Cash Flows Prior to 1971, the only requisite financial statements under Generally Accepted Accounting Principles (GAAP) were the balance sheet and income statement (Schroeder, Clark & Cathey, 2014, p. 254). At this time, there were a number of investors and creditors that desired information relating to the investing and financing activities of businesses that could not be mollified by the income statement and balance sheet alone (Schroeder et al., 2014, p. 254). In order to pacify these desires, the APB required a statement in changes of financial position to be presented whenever the other financial statements were reported (Schroeder et al., 2014, p. 255). In 1987 the Financial Accounting Standards Board (FASB) instituted the standards for and requirement to present a statement of cash flows, thus replacing the statement in changes of financial position. What goals are attempted to be accomplished by presentation of cash-flow information to investors? The primary goal accomplished by the presentation of cash-flow information is to make available cash receipts and payments information to it users (FASB, ASC 230-10-10-1). This information should aid investors and creditors (FASB, ASC 230-10-10-2). This is accomplished in the following primary ways: to evaluate an entity's capacity to generate forthcoming positive cash flows, the ability of an entity to meet its obligations, pay dividends, and meet needs for financing, to examine difference between net income and cash receipts, and to gauge the effect of investing and financing transactions on the company's financial position (FASB, ASC 230-1010-2). In addition to these primary goals, these statements provide an evaluation on the usefulness of the entities working capital (Schroeder et al., 2014, p. 258). CASE 7-5 3 Discuss the following terms as they relate to the presentation of cash-flow information: Liquidity According to Schroeder et al. (2014), liquidity is the capability of an entity to convert an asset to cash (p. 256). This means that the easier it is to turn an asset into cash, the more liquid it is. For example, stocks are relatively easy to sell and turn into cash, whereas a building would take much longer to sell. Therefore, stocks would be considered more liquid than a building. Liquidity is important as it provides information in relation to the timing of future cash flows and the assessment of solvency and financial flexibility (Schroeder et al., 2014, p. 256). Solvency Solvency is an entity's ability to acquire cash for business operations, or to pay its debts in a timely manner (Schroeder et al., 2014, p. 256). If a company was not able to generate the requisite cash through revenues, investment, or financing activities to pay its obligations, it would be considered insolvent. This is important, because a company must be solvent in order to be considered a going concern (Schroeder et al., 2014, p. 256). The treat of insolvency can increase the cost of capital to the entity or even lead to liquidation (Schroeder et al., 2014, p. 256). Financial Flexibility The ability of an entity to utilize its financial means to acclimate to change is called financial flexibility (Schroeder et al., 2014, p. 256). This concept becomes important when a company is faced with a crisis or an investment opportunity, where a financially flexible organization is able to benefit (Schroeder et al., 2014, p. 256). This is able to take place when a firm has access to liquid assets and is able to generate additional cash (Schroeder et al., 2014, p. 256). CASE 7-5 4 Biblical Application The statement of cash flows is important, in part, as it allows investors and creditors to judge the solvency of a business. As humans, we would all be insolvent if it were not for the work of Jesus Christ on our behalf (John 3:16, ESV). The Bible teaches us that all people have sinned, and come short of God's Holy standard (Romans 3:23, ESV). This creates a debt to God, that can only be repaid by death (Romans 6:23). Jesus Christ satisfies this debt for all that receive Him by faith, by His death and resurrection (Romans 3:24-26). CASE 7-5 5 References FASB (Financial Accounting Standards Board). (n.d.). ASC 230-10-10-1. Retrieved from FASB ASC Database FASB (Financial Accounting Standards Board). (n.d.). ASC 230-10-10-2. Retrieved from FASB ASC Database Schroeder, R.G., Clark, M.C., & Cathey, J.M. (2014). Financial Accounting Theory and Analysis: Text and Cases (11th Ed.). Hoboken, NJ: Wiley. Running head: CASE 5-4 COST, EXPENSE AND LOSS Case 5-4 Cost, Expense and Loss Discussion Board 3 Arlene Morial Dr. Wendy Achilles Advanced Financial Accounting Theory and Analysis Liberty University 1 CASE 5-4 COST, EXPENSE AND LOSS 2 Case 5-4 COST, EXPENSE AND LOSS You are requested to deliver your auditor's report personally to the board of directors of Sebal Manufacturing Corporation and answer questions posed about the financial statements. While reading the statements, one director asks, \"What are the precise meanings of the terms cost, expense, and loss? These terms sometimes seem to identify items and other items and other times seem to identify dissimilar items.\" Required: A. Explain the meanings of (1) cost, (2) expense, and (3) loss as used for financial reporting in conformity with GAAP. In your explanation, discuss the distinguishing characteristics of the terms and their similarities and interrelationships. Cost. The amount given in consideration of goods received or to be received. Costs can be categorized as unexpired (assets), which are associated with the production of future revenues, and expired; those not associated with the production of future revenues and thus deducted from revenues or retained earnings in the current period (Schroeder, R. G., et.al., 2014, p. 166). Expense. Outflows of assets or incurrences of liabilities (or a combination of both) during a period from delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's ongoing major operations (Schroeder, R. G., et.al., 2014, p. 137-166). Assets. Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events (Schroeder, R. G., et.al., 2014, p. 166). Loss. Decreases in assets from peripheral or incidental transactions of an entity and from all other transactions and events that affects the entity during a period except those that result from expenses or distributions to owners (Schroeder, R. G., et.al., 2014, p. 166). CASE 5-4 COST, EXPENSE AND LOSS 3 Cost, Expenses and Losses have the same effect in the financial statements or should I say have the same effect in recognizing revenue because they are all deductible to the income of the company. First the cost has to deduct to the sales revenue to get the gross profit, expenses has to deduct as well and the loss has to deduct to the inventory for the accuracy of their physical inventory as a result of the losses. They are all related to each other where in order to prepare a financial statement we need to consider all the necessary expenses, cost and losses to come up with the income of the company. B. Classify each of the following items as a cost, expense, loss or other category, and explain how the classification of each item may change: i. Cost of goods sold - is the total of all costs that have been used to produce the ii. product that has been sold. Bad debts expense - uncollectible accounts. The loss occurs when the customer iii. does not pay the amount owed and has to make an adjustments (Averkamp, 2016). Depreciation expense for plant machinery - allocated expenses over the useful iv. life of an asset. Spoiled goods - goods that have been spoiled and cannot be used anymore. Under Cost, I can classify Cost of goods sold as the total costs that have been used to create the product where they have to sell the product first to be part of cost of goods sold. Bad debts is originally from the accounts receivable until that receivable cannot be collected and can be charged to allowance for doubtful accounts. The journal entry is to debit allowance for doubtful accounts and a credit to the accounts receivable account (Bragg, 2012). Depreciation expense results when a company purchases a fixed asset and expenses it over its planned use, not just in the year purchased (Lesonsky, 1988). As the inventory gets sold (or used up), the cost expires, which is results in an expense: cost of goods sold (Schroeder, R. G., et.al., 2014, p. 166). CASE 5-4 COST, EXPENSE AND LOSS 4 Considered part of the loss where the company suffered loss due to fire, unavoidable events or uncertain events or the unforeseen events. C. The terms period cost and product cost are sometimes used to describe certain items in financial statements. Define these terms and distinguish between them. To what types of items does each apply? Product Costs. Are cost expirations that can be directly associated with the company's product, such as direct material, direct labor, and direct factory overhead (Schroeder, R. G., et.al., 2014, p. 167). One example would be, the company produces 150,000 units of Mogal in 2016 but only sells 125,000 units, only the product cost for the 125,000 units would be subtracted in 2016. The other 25,000 units would be inventoried and counted when sold. Some examples of the product cost that would go into 1 unit of Mogal would be the extender to prevent damage while freezing, the plastic straw that the unit is frozen in, and the plastic goblet that holds 5 units, the aluminum cane that holds 2 goblets of 5 each. Also included would be the labor cost to collect and freeze the product. Period Costs. The cost expirations that are more closely related to a period of time than to a product, such as administrative salaries or advertising costs (Schroeder, R. G., et.al., 2014, p. 167). What would be the Christians worldview for this organization? Just like what the bible says in Deuteronomy 6v25 \" And if we are careful to obey all this law before the LORD our God, as he has commanded us, that will be our righteousness.\" It is true that the whole duty of man is to fear God and keep his commandments as we follow the rules here on earth we should follow Gods commandment as well. Recognizing cost, expenses and losses at the right time can make a bigger impact on our righteousness and being honest to our CASE 5-4 COST, EXPENSE AND LOSS duties and responsibilities as accountant as we are accountable for each and every decision we make not only for the company we are working with but for ourselves as well. Reference Averkamp, H. (2016). What is Bad Debt Expense? Accounting Coach. Retrieved from http://www.accountingcoach.com/blog/what-is-bad-debts-expense Bible Gateway, New International Version. (2011). Love the Lord your God. Bible Gateway. Retrieved from https://www.biblegateway.com/passage/? search=Deuteronomy+6&version=NIV Bragg, S. (2012). How to Write Off a Bad Debt? Accounting Tools. Retrieved from http://www.accountingtools.com/questions-and-answers/how-to-write-off-a-baddebt.html Lesonsky, R. (2006). Income Statement. Entrepreneur. Retrieved from https://www.entrepreneur.com/article/21928 Schroeder, R. G., Clark, M. W & Cathey, J. M., (2014). Matching. Advanced Financial Accounting Theory and Analysis, p. 166-167. 5