In 300 words asnwer the 2 questions below in regards to the Importance of Cash Flow

In 300 words asnwer the 2 questions below in regards to the Importance of Cash Flow

Moss Exports is having a bad year. Net income is only $60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss’s accounts receivable are ballooning. The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company’s financial statements. Moss’s bank closely examines cash flow from operating activities. Daniel Peavey, Moss’s controller, suggests reclassifying the receivables from the slow-paying clients as long-term. He explains to the board that removing the $80,000 increase in accounts receivable from current assets will increase net cash provided by operations. This approach may help Moss get the loan.


1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Moss look better?

2. Under what condition would the reclassification of the receivables be ethical? Unethical?




Solution Preview

Question 1
Without classification: With Classification:
Overall gain $60,000 Net Income $60,000
Records Receivable ($80,000) Accounts Receivable ($0)
Net Cash ($20,000) Net Cash ($20,000)
Reclassifying records of sales to creditor liabilities take what was a transient instalment and make it into a long-haul payment. It is moral to do it along these lines since you are as yet accepting your cash a little more than a more drawn out period,

(301 words)

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