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Accounting Shenanigans on the Cash Flow Statement http://www.youtube.com/watch?feature=player_embedded&v=bSZMP56IPto
Definition The term "Accounting Shenanigans" refers to the manipulation in the accounting information. In other words The use tricks to deceive the users of the cash flow statement, Cash flow is very difficult to manipulate but there are some cheats used by the managers to mislead the cash flow statement known as Accounting Shenanigans on The Cash Flow Statement. Why is it important?
Ethically and legally it is not, but it is an important tool for those managers who wants to deceive the users of financial statement for their benefit, it is very difficult to find errors and frauds in cash flows that is why managers use these tools to manipulate the cash flow statement information to make companies performance look better. Lecture Notes
Methods of Manipulating Cash flows Stretching out payables Financing of payables Securitization of receivables Using stock buybacks to offset dilution of earnings
Stretching out payables: This is one of the easiest methods to inflate cash flows
Basically the company delays the payment to suppliers in this way cash is increased in the statement of cash flows but for a temporary time.
Financing of payables: Similar to stretching out payables, a company may choose to finance a portion of their payables so they can record the smaller interest expense instead of the principal amount of the payable as an expense.
For example, a company may ask bank to give a short term loan and in this way company pays its creditors but the cash flow is not reduced but to the extent of the interest payment on loan (which is very lower than the amount pays to creditors)
Securitization of receivables: a company may attempt to securitize their receivables like a leasing agreement
Instead of recognizing the receivables when they should be reported, securitizing them will give the company the ability to manipulate their reported earnings,
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