January 10, 2019 at 10:31 am #2158051
I am having a difficult time with Cash Flows. I am just not grasping the concepts, the questions, anything! I thought I understood it better when I listened to the Ninja PLUS Videos, but when I did MC questions, I was clearly wrong.
Does anyone have any hints/tips on CFs? With my luck I will get a HUGE SIM on CF! lolJanuary 10, 2019 at 11:15 am #2158099
I made a username just to respond to this. I just passed FAR and have to tell you I hated cash flows. I felt like I just couldn't wrap my head around it. What ended up helping me get through it was that a I memorized “bad things are added, good things are subtracted”. For example, an increase in current liabilities I considered “bad” and knew to add it to net income. Depreciation is an expense, expenses are “bad”, add to net income. An increase in current assets, increasing assets are “good”, subtract from net income and so on. This might not be the best way but it is what got me through FAR a few weeks ago. After I had that down I built off of that. Good luck.January 10, 2019 at 2:11 pm #2158354
This was also one of my nightmare areas, and I knew if I gave up it would be on my exam.
I probably spent a whole week going over this area multiple times to get it right.
There are some useful videos on youtube and the Roger CPA website that I'd recommend you watch to help you get a handle on this.
Man, it's been a while since I heard that voice. That video brings back some memories/flashbacks.
The method in this video is the one I took extra time to learn.January 11, 2019 at 11:22 am #2159644
What worked for me was using JE's for the conversions. You can start with NI as a Credit and plug some other numbers. I forget if it is cash to accrual (or the other way around) that is the opposite for balance sheet accounts. That really simplified it for me then I started getting 90% on my MCQ. The Operating/Investing/Financing you just have to know. Roger's does a great job explaining that part.January 11, 2019 at 12:03 pm #2159701
Going through the actual T accounts and JEs helped me as well.January 11, 2019 at 2:16 pm #2159911
The SOCF is a reconciliation from NI to ending cash. Converting NI to cash for accrual basis. We have to understand that under accrual basis, companies can record revenue/expenses BEFORE cash is transferred. So NI includes credit sales (receivables) and accrued expenses (AP) from operations. Under accrual, when cash is finally received/paid, the balance sheet is adjusted since PnL was already recognized before cash was received/paid. Therefore, we can impute the cash collection/disbursement by looking at the change in balance sheet for the period.
A decrease in asset (AR) suggests that cash was collected – Add to NI.
A decrease in liability (AP) suggests cash was paid – Subtract from NI.
An increase in asset (AR) suggests an increase in uncollected cash revenue (inflating NI) – Subtract from NI.
An increase in liability (AP) suggests an increase in unpaid cash expenses (deflating NI) – Add to NI.
NI also includes non-cash transactions that impact the PnL, such as depreciation expense. We have to add back periodic depreciation expense to NI. This is similar to an increase in liability, except it is considered a contra-asset account (accum depr).
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