Accounting Demystified phần 9 ppt

140 Accounting Demystified

To approximate the cash provided by customers, we start

with net income, which contains the sales figure. Let’s say Ac￾counts receivable went up from last year. That would imply

that a portion of this year’s sales has not been collected, and

therefore we reduce net income by the amount of the increase

in Accounts receivable. If Accounts receivable went down from

last year, that would imply that not only did we collect all of

this year’s sales, but we also collected some of last year’s sales.

So we would add the decrease in Accounts receivable to net

income.

If Accounts payable increased from last year, then a por￾tion of this year’s expenses did not require the use of cash. So

we adjust for the increase in Accounts payable by adding it to

net income. If Accounts payable went down, that would mean

that not only did all of this year’s expenses involve the use of

cash, but we also a paid a portion of the expenses that we owed

at the end of last year. We need to subtract the decrease in

Accounts payable from net income.

Figure 20-1 shows how the changes in current assets and

current liabilities will be used to adjust net income.

The adjustments use this logic: In trying to figure out the

change in Cash, in order for Accounts receivable to increase,

FIGURE 20-1

Adjustment to Net Income

Current assets

Increase 

Decrease 

Current liabilities

Increase 

Decrease 

.......................... 10288$ CH20 08-29-03 08:31:48 PS