Ethics In Accounting
Ethics in Accounting
Student’s Name
Institutional Affiliation
In this case without reclassification of accounts receivable, net cash that is utilized in operation is given as;
Net Income
$60000
Decrease or (Increase) in accounts receivable
($80000)
Net amount provided in operation
($20000)
If there is reclassification as anticipated, the net cash used in operation is;
Net Income
$60000
Net income provided in operation
$60000
Through reclassification of $80000 of accounts receivables to long term, the cash inflow from operation will also increase by the same $80000 since it basically looks as if the company collected $80000. It is however understandable that there will be no net effect on the cash flows, this is so because the $80000 will be recorded as cash receivables outflow in long term.
The rise in the accounts receivable will instead be reported as a rise in the long term receivables under the section marked as investment activities of the statement of cash flow. Though the changed net cash flow from the company’s operation can make Moss look better, there is no general change to the net cash flow (Loeb, 2008).
Reclassification of the receivable can only be ethical if the receivables in the actual sense are projected to be received no sooner than the first twelve month of the year. Reclassification will only be considered unethical if the receivables are scheduled to be recovered sooner than after the twelve months and to that case if Moss still records them as long term receivables. Moss can report the short term part of the receivables as current asset as well as the long term part as noncurrent asset if not all the receivables are long term (Loeb, 2008).
Such reclassification can only be ethical if the company creates an agreement with the overseas debtor with a new collection agreement where the $80000 is seen as collected. It will only be unethical if the company is only reclassifying bad debts to long term debts, it is
Student’s Name
Institutional Affiliation
In this case without reclassification of accounts receivable, net cash that is utilized in operation is given as;
Net Income
$60000
Decrease or (Increase) in accounts receivable
($80000)
Net amount provided in operation
($20000)
If there is reclassification as anticipated, the net cash used in operation is;
Net Income
$60000
Net income provided in operation
$60000
Through reclassification of $80000 of accounts receivables to long term, the cash inflow from operation will also increase by the same $80000 since it basically looks as if the company collected $80000. It is however understandable that there will be no net effect on the cash flows, this is so because the $80000 will be recorded as cash receivables outflow in long term.
The rise in the accounts receivable will instead be reported as a rise in the long term receivables under the section marked as investment activities of the statement of cash flow. Though the changed net cash flow from the company’s operation can make Moss look better, there is no general change to the net cash flow (Loeb, 2008).
Reclassification of the receivable can only be ethical if the receivables in the actual sense are projected to be received no sooner than the first twelve month of the year. Reclassification will only be considered unethical if the receivables are scheduled to be recovered sooner than after the twelve months and to that case if Moss still records them as long term receivables. Moss can report the short term part of the receivables as current asset as well as the long term part as noncurrent asset if not all the receivables are long term (Loeb, 2008).
Such reclassification can only be ethical if the company creates an agreement with the overseas debtor with a new collection agreement where the $80000 is seen as collected. It will only be unethical if the company is only reclassifying bad debts to long term debts, it is
References: Duska, R., & Duska, B. (2003). Accounting ethics. Malden, MA: Blackwell Pub. Loeb, S. (2008). Ethics in the accounting profession. Santa Barbara [Calif.: Wiley. Mintz, S. (2007). Cases in accounting ethics & professionalism (3rd ed.). New York: McGraw-Hill Companies.