ACCT 101 Importance of cash flow ACCT 101 Importance of cash flow

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Importanc of cash flow

Moss Exports is having a bad year. Net income is only $60,000. Also, two important overseas
customers are falling behind in their payments to Moss, and Moss’s accounts receivable are
ballooning. The company desperately needs a loan. The Moss Exports Board of Directors is
considering ways to put the best face on the company’s financial statements. Moss’s bank
closely examines cash flow from operating activities. Daniel Peavey, Moss’s controller, suggests
reclassifying the receivables from the slow-paying clients as long-term. He explains to the board
that removing the $80,000 increase in accounts receivable from current assets will increase net
cash provided by operations. This approach may help Moss get the loan.

Requirements
1. Using only the amounts given, compute net cash provided by operations, both without and
with the reclassification of the receivables. Which reporting makes Moss look better?
2. Under what condition would the reclassification of the receivables be ethical? Unethical?