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Chapter 5

ACC 110 Chapter Notes - Chapter 5: Cash Flow Statement, Operating Cash Flow, Accounts Payable

Course Code
ACC 110
Brad Mac Master

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Chapter 5
- Makes the world go round
- It’s cash that pays the bills (not income and revenue)
- Without it business quickly grinds to a halt
- Cash and liquid are important
Cash Cycle
- The cycle of investing cash in resources, providing goods or services to
customers using those resources and collecting cash from customers
Cash vs Accrual Accounting
- Serve different objectives
- Hence multiple financial statements
Inventory Conversion period
- Average length of time between receiving inventory from a supplier and
selling it to a customer
Payable deferral period
- Average number of days between receiving of goods or services from a
supplier to payment of the supplier
Receivables conversion period
- Average length of time between delivery of goods to customer and receipt of
Inventory self-financing period
- Average number of days between date inventory is paid for and the date it’s
sold to a customer
The Length of a cash Log
- Delay between the expenditure of cash and the receipt of cash is called Cash
Lag (5.2)
- Varies from business to business
- Less time supplies give an entity to pay
- More time an entity give its customer
- Lengthy manufacturing process = money for inventory for longer time
- Cash log = short because there isn’t any inventory to contend with
Basic IFRS Assumption
- Unit of measure
- Unit-of-measure assumption states that the economic activity of an entity can
be effectively reported in term of a single unit of measure
- A single unit of measure allows diverse information to be aggregated and
- Drawbacks: 1. Information about the individual items being measured is lost
2. Characteristics must easily measure in terms of dollar aren’t
3. Changing purchasing power or money of money over time
caused by inflation is ignored
Entity concept
- Assumes an entity of interest (corporation, partnership, proprietorship, a
division of a corporation) can provide information that is separate from the
information of owners or other entities
- Going concern -> is an entity that will be continuing its operations for the
foreseeable future
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