„« I can assure you its possible that cash purchases and credit purchases combined in a year will not increase inventory. (Cogs = purchase) Can you prove it? Then go ahead and try. I am just 21; I am very much interested in learning. I would still say that COGS may or may not be equal to purchase. „« I said you absolutely need COGS to calculate cash paid to suppliers (when purchases is not given, which is most of the time). but you beg to differ. you and other newbs claimed that theres no direct relationship or COGS is not “necessary” when calculate cash flow. Even CFA textbook says that one needs purchase amount in order to calculate cash paid to suppliers. COGS is required to calculate purchase amount. PAGE 268 CFA FSA TEXTBOOK „« i dont believe you need to prepare t accounts “before the financial statements”. balance sheets are t accounts. you cant put together a balance sheet in any other way. spirit Wrote: ------------------------------------------------------- > Accounts follow double entry system, that means for every transaction there will be TWO entries. no comment. You have no idea what accountancy is all about. „« i can assure you its possible that cash purchases and credit purchases combined in a year will not increase inventory. (cogs = purchase) Purchases during a year will increase inventories and sales will decrease inventories. I am not a native English speaker, I made many mistakes, I agree, I will not make any excuses, mistakes are mistakes and I sincerely apologies for it. I will try to do a better job next time I write sometime. ‘Schweser’ material is good, but CFA prepares the exam. Try reading their text books if in doubt. Best of luck for the exam and I am sorry if I said something harsh. PS: I have no interest or have any free time to get involved in any war of words, so from next time, I will speak to the point.
MrK150, I think you need to take Accounting 101, COGS is based on accrual and taxes paid are always cash. I did not have time to read all the posts… and i also dont care for reading useless arguments… cogs = beg inv + purchases - end inv Now purchases are not always on cash that why we have accounts payable, and when we calculate cash paid to suppliers under the direct methods, what we are trying do is to calculate the cash paid portion in account payable account. There are other expenses like plant depreciation, accrued wages etc that are non cash in cogs. I think it helps… and I think you need to work a lot of rest of FSA… as it is just the beginging… and for my credentials… I am an accounting major from ASU … and I think I know what I am talking about.
madanalyst: you obviously didnt read the post so i dont know why you are commenting on this. i never argued about the nature of cogs or taxes paid. my statement was that you need cogs to calculate cash flow when purchases amount is not given. others disagreed with me. whats your take on that? madanalyst Wrote: ------------------------------------------------------- > MrK150, I think you need to take Accounting 101, > COGS is based on accrual and taxes paid are always > cash. I did not have time to read all the posts… > and i also dont care for reading useless > arguments… > > cogs = beg inv + purchases - end inv > > Now purchases are not always on cash that why we > have accounts payable, and when we calculate cash > paid to suppliers under the direct methods, what > we are trying do is to calculate the cash paid > portion in account payable account. There are > other expenses like plant depreciation, accrued > wages etc that are non cash in cogs. > > I think it helps… and I think you need to work a > lot of rest of FSA… as it is just the > beginging… and for my credentials… I am an > accounting major from ASU … and I think I know > what I am talking about.
spirit Wrote: ------------------------------------------------------- >Even CFA textbook says that one needs purchase amount in order to calculate cash paid to suppliers. COGS is required to calculate purchase amount. PAGE 268 CFA FSA TEXTBOOK so youve been agreeing with me all along. i said you need cogs to calculate cash paid to supplies when “purchases” amount is not given. thats my mine question to you. and you dont need the “purchases” amount. it doesnt matter if its purchased with cash or credit. it doesnt matter when “purchases” amount is not given. you also claimed spirit Wrote: ------------------------------------------------------- >I do not think there is a direct relation between COGS and cash paid to suppliers.
spirit: if your purchase total is $10,000 this year (it doesnt matter if its purchased with cash or credit), and the cogs on the income statement is also $10,000, then your inventory will not change. i never said cogs and purchase are always equal; i said its possible that even with purchase, inventory level can stay unchanged. that was the context. i was saying with regard to one of your generalized comments. spirit Wrote: ------------------------------------------------------- >Cash purchases during a year (cash goes out and inventories are increases) + Credit purchases during a year (inventories increase and accounts payable increases) = total purchases during a year (total of cash purchases and credit purchases) will increase inventories. let me highlight the misleading part for you. spirit Wrote: ------------------------------------------------------- >total purchases during a year (total of cash purchases and credit purchases) will increase inventories. thats not completely correct in our context. it only stands when cogs is less than purchase. i know any purchase will increase inventory level. but we were talking about cash paid to suppliers. i guess its a bad choice of word. instead of saying, “I can assure you its possible that cash purchases and credit purchases combined in a year will not increase inventory.” i meant unchanged. “I can assure you its possible that cash purchases and credit purchases combined in a year can result in unchanged inventory level.”
madanalyst: my initial statement was cogs expense will decrease cash flow. madanalyst Wrote: ------------------------------------------------------- >when we calculate cash paid to suppliers under the direct methods, what we are trying do is to calculate the cash paid portion in account payable account. sounds fishy. cash paid to suppliers = beginning accounts payable - ending accounts payable + purchases guess what, even with no change in your accounts payable, you can still have cash paid to suppliers with new purchases.
MrK150, sounds like you have a lot of work to go before December.
Mrk150: looks like you are pushing hard for FSA and also using your naive logics to explain some of the blackboxes in the text …and it is good for learning … but here is my suggestion … in old days of accounting we use t-accounts a lot and unfortunately lot of new texts are completely ignoring the importance of t-accounts … and in my opinion … it is the biggest factor that confuses students in accounting… on a base level all we are doing is just making t-accounts using statements… make t-accounts for accounts payable, cash, purchases, other direct inventory expenses like transportation, plant depreciation etc and then try to find out cogs … if you have time just pick some old edition of basic accounting text book … (british publisher preferably) and go through the examples … also … learn a little about how a manufacturing concern COGS accounting is different from the retail entity (middleman)… also … if you can think of accounting problems in terms of t-account … it will also save you from lot of cramming of how to adjust the financial statments before analysis… and lot of other topics will just come naturally … direct methods cash flows is just an application of “Incomplete records accounting” and some british authors call it “Single entry accounting” again this topic is being completely ignored … before double entry bookkeeping was invented merchants record just one aspect of the transaction and other was implied and accountants use to figure out the missing balancing number to make financial statements … although it is useless these days in bookkeeping but excellent in understanding accounting … also forensics accounting is an extension of single entry bookkeeping … btw lot of people think that forensics accounting is an emerging branch of accounting that evolved after the worldcom and the enron shenanigan
i think this needs to be settled with a dance-off
hahahahhaha
madanalyst: i dont know why none of us is on the same page here. anyway, you pointed out the way i approach financial statements and i definitely think in terms of t accounts. i agree with what you are saying in terms of figuring out the corresponding changes on the balance sheet with respect to an entry. i tend to associate the increase/decrease of an account with my own interpretation and reasoning. all i was trying to get across is that cogs is used and necessary to compute cash paid to suppliers. i know purchaes, changes in inventory level, changes in accounts payable will all affect cash paid to suppliers, but purchases is normally not stated. i think all this confusion is attributed to the wording of my statement. initially, i said with purchase, inventory will not change. what i wanted to say was with purchase, inventory can stay unchanged when cogs equals purchase. thanks for your message.
uhohcfa: point out my mistakes or teach me something and maybe ill do a dance.
MrK150 - here is something you can learn called subject verb agreement. while the indefinite pronoun “none” can often be used in either a singular or plural form here, it is more appropriate to use the the plural form of the verb since multiple people are not on the same page as you. hence, “i don’t know why none of us are on the same page here” is the proper usage, do the chicken dance.
MRK150: you are right about using COGS to calculate cash paid to suppliers when purchases are not given… but COGS do not necessarily go hand in hand with cash paid to suppliers… consider a manufacturing business which bought a lot of raw materials and made finished goods inventory but was not successful in selling the finished goods … COGS (period cost) will be low as most of the expenses are sitting in the ending inventory (product cost) … but cash paid to suppliers might be high … so there is not a definite relationship here … actually it is a kind of an accounting trick to boost profits in the short term … and thats why analysts should be careful about inventory build-up … other than the obsolete inventory issue …
uhohcfa, i mean constructive criticism pertaining to cfa. however, make no mistakes about it, i will give you credit for pointing that out, but it dont earn you no chicken dance. cock-a-doodle-doo. you, clown.
c-o-c-k-a-doodle-doo
madanalyst: yes, i totally agree with your statement and management can manipulate financial statements with different inventory accounting method. i was only thinking about buy and sell: anything bought that was not sold ends up in the inventory. i didnt look at it from a manufacturers perspective.
MrK150 Wrote: ------------------------------------------------------- > uhohcfa, > > i mean constructive criticism pertaining to cfa. > however, make no mistakes about it, i will give > you credit for pointing that out, but it dont earn > you no chicken dance. cock-a-doodle-doo. > > you, clown. well, this is about as pointless as the feud between 50 cent and the game. i’m done. i quit g-unit. enjoy having stimulating debates on lifo/cogs
uhohcfa: you brought up the dance first. if you refrain yourself from unleashing unrelated comments and jokes, it will do this forum good. theres no feud here; at the end of the day, this forum is for stimulating and improving each other intellectually so we ll be ready comes december.
I am confused. Was this question answered? “in schweser, it states that LIFO in early years has higher COGS and thus lower taxable income and lower tax outflow which then translate to higher cash flow. but wont the increased COGS be greater than the decreased tax outflow? shouldnt a higher COGS mean a lower cash flow?”