ACCT 202 Essay 3 Instructions You are a partner in Acme Acco

ACCT 202: Essay 3 Instructions You are a partner in Acme Accounting PSC and as such are considering how to The Issue: respond to a letter written to you by \"Bob\" a new client. In his letter, he stated that he heard that he could use either a \"Direct Method\" or an \"Indirect Method\" of presenting cash flows. He wants you to explain the difference, and give your opinion on what would be the best method for his real estate business. The Format: Using the letter template provided on page two of this file, write a letter to \"Bob.\" Your letter should not exceed one page and should use the Introduction, Main Body, Conclusion format. Type your name in the signature block, rename the file, and attach it in the appropriate drop-box.

Solution

ACME ACCOUNTING PSC

10/06/2018

Dear BOB,

This in reference to your Letter and regarding some question about \"Direct method\" and \" Indirect method\" of presenting cash flows. Now I am going to explain your these two methods and tell you the different between them.

First, \"Direct method\" of presenting cash flow is also called the \"income statement method\" which reports cash receipts and cash disbursements from operating activities. The difference between these two amounts in the net cash flow from operating activates. In other words, the direct method deducts from operating cash receipts the operating cash disbursements. The direct method results in the presentation of a condensed cash receipts and cash disbursements statement. A disadvantage of the direct method is that the information may not be readily available for accounting records. Making this method used by less than 1% of companies

Then, \"Indirect method\" is also called reconciliation method, which starts with net income and converts it to net cash flow from operating activities. In other words, the Indirect method adjusts net income for items that affected reported net income but didn\'t affected cash. To compute net cash flows from operating activities, noncash changes in the income statement are added back to net income, and net cash credits are deducted.
I hope my explanation can help you to understand these two methods.

Relating this information to your Real Estate Business, I feel it’s important to note that the reason over 99% of companies use Indirect method , This is because by indirectly determining these values, the figures are readily available for analysis at all times. Therefore I feel it would be in your best interest to use the indirect method to report cash flows from operating activites. Also for a real estate you would use percentage of completion method, wherby you would recognize your sales on a percentage basis.this is another reason for suggestion of indirect method . Hopefully, my opinion can help you.
Sincerely,
(Your Name)