1) Why is a decrease in prepaid expense listed on the cash flow statement as a p
ID: 2460660 • Letter: 1
Question
1) Why is a decrease in prepaid expense listed on the cash flow statement as a positive adjustment to net income?
2) If a company reports an increase in accounts receivable and accounts payable for its current calendary year, is the number for accounts receivable a positive or negative number in the company's cash flow statements? and is the number for accounts payable a positive or negative number in the company's cash flow statements?
3) Why is a increase in accounts receivable listed on the cash flow statement as a negative adjustment to net income?
3) On the audit report, when an audit firm like Ernst & Young, LLP or Deloitte & Touche, LLP claims that they conduct their audits in accordance with the standards of the Public Company Accounting Oversight Board (PCAOB), in which those standards require the auditors that they plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, do (1) auditors assess the company's system of internal controls ensure the information was prepared in accordance to GAAP. Additionally, auditors examine, on a test basis, evidence supporting the financial statement amounts and disclosures. or (2) auditors assess the company's system of internal controls ensure the information was prepared in accordance to SEC. Additionally, auditors examine, on a test basis, evidence supporting the financial statement amounts and disclosures. Which one is the answer: #1 or #2, and please explain why.
Explanation / Answer
1)
Prepaid expense is a short-term asset. It helps to save current cash flows of the firm by paying insurance expense of the firm with its account balance. Hence, cash flows will be saved. Moreover, while preparation of cash flows from operations, decrease in current assets will be considered as cash inflow. Cash flow assumes those are sold or used.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.