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?”
thealiman : I think the question has been answered, here is the result we use cogs to find “cash paid to suppliers” under direct cash flow method, if purchases are not given (and usually its not). COGS is adjusted for inventory to get purchases amount. After that we find cash paid to suppliers by adjusting the increase/decrease in account payable. But, COGS dont go hand in hand with the cash paid as cogs has accrual elements in it. Higher cogs does not mean more cash is paid. But it for sure means that less taxes will be paid. end result: COGS is accrual account and does not conicide with payment to suppliers and taxes paid is cash account and results in less cash payment to taxman and increase cfo.
Right on. Exactly what I was thinking. Thanks very much!
By the way, The analysis is exactly the same if you’re talking about cash from customers. Indirect method, you don’t care about it. Direct it’s either given or you use Revenue +/- change in accounts receivable. Hopefully no one’s head will explode because of this posting.