Advanced UCA Cash Flow: Part I of II
Q: We used a “long form” UCA in class. Is there a short form UCA for Western Star like I did in your pre-work? The Gain of $59,392 is showing as part of my short form Business Cash Income. I did not see the impact of this gain in the long form we walked through?
A: Your UCA Cash Flow is absolutely correct and your results match the “long form” we used in the webinar at every checkpoint from Business Cash Income to Calculated Change in Cash. We offer these thoughts regarding what might appear to be an inconsistency in handling the $59,392 Gain on Sale of Asset:
- Note first that your Modified UCA Form represents the indirect method of reporting cash flow which begins with net income. We used the direct method in presenting our “long form” CF during today’s webinar. Both are correct and both accurately track Western Star Energy 2014 cash flow.
- Note that the Net Business Income of $79,403 start point for the indirect method you chose includes the impact of the non-cash Gain on Sale of Asset. To adjust for this, it’s absolutely appropriate to subtract the Gain in arriving at Business Cash Income to eliminate the implication that it represents a positive cash flow for the business. Recall that all cash flow impact is associated with accounting for the original sales proceeds.
- No such adjustment is needed when employing the “long form” direct method since we start with Sales. Each succeeding income statement line item is then adjusted by the amount of the change in the counterpart balance sheet account(s). The Gain is simply not introduced in the calculation of Business Cash Income and our results match.
- Note also that the calculation of Fixed Asset Spending is identical under both methods and both make appropriate use of the Gain to accurately depict the company’s 2014 FA Spend.
Course overview: Advanced UCA Cash Flow: Part I of II