Are there any tough accounting questions that you have?
Are there any tough accounting questions that you have?
are there any tough accounting questions you have (with the answer) that you could give me? I want to stump my teacher in class...
Answers:
Rory N: why did the chicken cross the road?
to get to the other side!
2009-01-13 15:26:39
2009-01-13 15:26:39
Chosen Answer
Chuck: Oh, yes, I've got one for you: The cash-flow statement is supposed to measure "cash events," literally, the flow of cash into and out of a business. Stupidly, depreciation is an item on the cash-flow statement, when it is not a flow of cash. If a business buys a forklift for $5,000, and depreciates it over 10 years, they may get to "write off," or depreciate the value of the forklift by $500 per year. For taxes, this is fine -- but to subtract that same $500 a year from a cash-flow statement is absurd. Notice that the original $5,000 cost of the forklift is listed as a Capital Expenditure, and is subtracted from the income statement. The idea of subtracting some random number from cash-flow is nonsense. Think of it like this: if you put a new roof on your house for $10,000 and write it off your taxes for 20 years, you'll get $500 a year in depreciation -- but is $500 a year IN CASH really going anywhere...? No, it's not. The cash went out the door when you installed the roof -- that was the CapEx (Capital Expenditure). The idea of putting Depreciation on the cash-flow statement is 100% pure hogwash, and nobody can explain why it is there. Ask a Senator. I have. I asked a Senator who sat on the committee approving the regs on this, he hadn't the foggiest idea what I was even talking about. Your instructor won't be able to explain it, either. Because it's nonsense.
2009-01-13 15:28:38
Chuck: Oh, yes, I've got one for you: The cash-flow statement is supposed to measure "cash events," literally, the flow of cash into and out of a business. Stupidly, depreciation is an item on the cash-flow statement, when it is not a flow of cash. If a business buys a forklift for $5,000, and depreciates it over 10 years, they may get to "write off," or depreciate the value of the forklift by $500 per year. For taxes, this is fine -- but to subtract that same $500 a year from a cash-flow statement is absurd. Notice that the original $5,000 cost of the forklift is listed as a Capital Expenditure, and is subtracted from the income statement. The idea of subtracting some random number from cash-flow is nonsense. Think of it like this: if you put a new roof on your house for $10,000 and write it off your taxes for 20 years, you'll get $500 a year in depreciation -- but is $500 a year IN CASH really going anywhere...? No, it's not. The cash went out the door when you installed the roof -- that was the CapEx (Capital Expenditure). The idea of putting Depreciation on the cash-flow statement is 100% pure hogwash, and nobody can explain why it is there. Ask a Senator. I have. I asked a Senator who sat on the committee approving the regs on this, he hadn't the foggiest idea what I was even talking about. Your instructor won't be able to explain it, either. Because it's nonsense.
2009-01-13 15:28:38