Non-cash expenditure Essay Example for Free

Non- notes expenditure EssayCASE 1 The effectiveness of the abstract material for the monetary invoice Standards Board is high. Unfortunately, its effect to outsiders is limited. As already stated, the conceptual remainswork lead aid in the setting of accounting specimens. However, only internal persons of the monetary be Standards Board are involved in the standard setting process. Therefore much(prenominal) yardstick will only beneficial to them, because outsiders like accountants will make water to abide with the standard issues.Indeed it is a normal trend that standards issued are adjusted in the incoming due to industrial factors that they omitted to consider or did not tackle properly. An argument in favor of the conceptual framework with respect to outsiders is that it enhanced the credibility of fiscal descriptions through the issue of objectives and concepts in such framework (Foster M. J. et al two hundred1, p 2). CASE 2 a) The bullion basis of account ing is based on the infix that a transaction is put down once currency inflow or specie outflows arises on capital and gold equivalents (Randall H 1999, p 247).On the contrary the accrual basis of accounting is based on the concept that r veritable(a)ue and expenditure are recorded once incurred and not when the cash receipt or acquitment arises (Randall H. 1999, p 191). For example, if license of a motor vehicle of $1,200 is paid in the beginning of November and the financial year-end is 31st December. Under the cash basis $1,200 is deducted. However, at a lower place the accruals basis only expenditure of $200 is recorded representing the expense incurred in November and December. b) The depose should always lend roof in good faith.That is the money ought to be lend to persons who are financially capable to repay it in a given meter frame. We should bear in mind that the money lent by the bank is coming from the depositors funds, which have in turn trusted the bank wit h their money. A fundamental principle of the code of ethical conduct of professionals states that the decisions interpreted by such parties should deter from providing harm to other parties and ought respect the rights of others (Association of accounting Technicians 2007, p 7).Therefore if the bank manager of Ernest Banks knows that if the financial reports of the firm at hand are prepared on an accruals basis, which will finally lead to lower wins. There is the find that the financial ability of the company to pay the interest and capital commitments concerning the loan diminish. They should indeed take remedial action in order to mitigate such risk and thus safeguard the resources entrusted by depositors. c) The problem at hand identified in the previous pass necessitates that the owner is informed of this issue as soon as possible.They ought to explain that the cash balance account in the monthly bank statements does not represent the existing pro fail made by the fear enterprise. Such illustration should be made in light of the weaker financial ability of the company to pay interest and capital commitments on the present loan that the firm will face in the nigh future. Since the business is experiencing growth there is still potential for the firm to mitigate the problem at hand. This beginnings the richness of informing the owner of such issue, who will take remedial action to solve it.However, the bank should terminate from providing specific solutions, since liabilities whitethorn arise if such solutions do not solve or possible even worsen the present financial performance of the company. CASE 3 1) The net join on in cash and cash equivalents originating in the cash flow statement is different from the net income portrayed in the income statement due to the different principles followed that where contrasted in the previous question of the former case. The reason for such disparity stem from a number of factors.For example, in the cash f low statement only the cash received from cash sales and debitors is recorded. In the income statement, all the sales incurred are taken into account. Similarly the cash payments for purchases, expenditure and to creditors are shown in the cash flow statement. However, in the income state all expenditure and purchases incurred in that time frame are taken into account (Lewis R. et al 1996, p 317). Non-cash expenditure like render for depreciation and provision for slow moving stock are deducted from the profit figure.These are omitted from the cash flow statement since they do not represent cash outflows. Further more, capital expenditure incurred and paid during the period is recorded under the commit activities of the cash flow statement. This even though incurred is not portrayed in the income statement, but is recorded in the balance sheet due to its materiality and long-term effect. Hence it will affect cash flow but not net income. This thus clarifies the reason why the net income of $100,000 significantly differs from the actual cash flow balance depicted in the cash flow statement.2) The operating cash flow, which in conclusion portrays the cash inflow or outflow from operating activities is very important for the organization, since it should the net cash generated/ disconnected from the firms operations. From the differences noted previously it is important that a company not only makes profit but to a fault generates sufficient cash from its operations to be able to meet its financial obligations (Weetman P. 2003, p 185-186). The operating cash flow should be considered as the lifeblood of the firm. Without cash from the operating activities the firm cannot operate for long.It is therefore important that a consistent net cash inflow from operating activities is shown in the financial statements. 3) The sources of cash flow that can be replaceable by new growth are long-term debts that get and are taken back to finance new growth prospects. Fixe d assets classified under investing activities can also be renewed once they finish their possible economic benefits by buying similar or better ones. Redeemable share capital, both ordinary and preference can also be renewed by another issue of such finance instruments (Lewis R. et al 1996, p 321).4) The source basic solution of improving cash flow in view of the cash issue defined is by focusing on sales and inventory management. By increasing the inventory turnover and diminish the money tied up in stock by diminution stock levels can be useful remedies in order to free up some cash and enhance the liquidity of the throng Spencer Corporation. Cash sales can also be boosted through the introduction of cash discounts. It is also apposite that present debtors are properly chased by the credit control department to ensure that cash is collected on time (Bernabucci B.2005).Financial managers can also alleviate cash by reducing the debtors collection period through effective credit control policies and procedures put in practice and increase the creditors collection period from the present and potential suppliers. The factoring services provided by factor companies can be another viable solution to enhance cash flow from debtors. Factoring basically comprises the forwarding of a debt to a factor company at a reduced rate than the face value of such debt in exchange of a cash receipt of that account receivable (Ccassociates).For example a debtor of $10,000 of Company A is transferred to a factor company at 85%. Company A will receive $8,500 from such account receivable and then it is the responsibility of the factor company to collect the $10,000 from the work debtor. James Spencer Corporation can also cushion its cash by either opting for an overdraft facility or increasing the present overdraft. This will act as a buffer against any unforeseen events that may weaken the cash flow of the firm. Even though bank overdraft is payable on demand by the bank, such debt medium is extremely flexible.This is due to the fact that the company can utilize how much of the debt it seems fit (Washington State University). For example if the overdraft facility is of $50,000, the company may take only $20,000 of such overdraft.References Association of Accounting Technician (2007). Professional Ethics. Berkshire Kaplan Publishing. Bernabucci B. (2005). Improving you Cash Flow Problems, Entrepreneur. com (on line). Available from http//www. entrepreneur. com/money/moneymanagement/financialanalysis/article79084. html (Accessed 15th November 2007).Ccassociates. The Factoring termination (on line). Available from http//www. ccassociates. com/factoring_solution_accounts_receivable_factoring_explained. html (Accessed 15th November 2007). Foster M. J. Johnson L. T. (2001). Why does the FASB have a Conceptual Framework? Financial Accounting Standards Board (on line). Available from http//www. fasb. org/articlesreports/conceptual_framework_uti_aug_2001. pdf ( Accessed 16th November 2007) IAS 17 (2000). Leases. London International Accounting Standards Committee.International Accounting Standards (2000). Framework for the Preparation and Presentation of Financial Statements. London International Accounting Standards Committee. Lewis R. Pendrill D. (1996). Advanced Financial Accounting. fifth part Edition. London Pitman Publishing.Washington State University. Short Term Sources of Finance (on line). Available from http//cbdd. wsu. edu/kewlcontent/cdoutput/TOM505/page36. htm (Accessed 15th November 2007). Weetman P. (2003). Financial and Management Accounting. Third Edition. Essex Pearson Education Limited.