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Date Posted: 11:17:09 11/22/04 Mon
Author: chas easly
Subject: reconciling balance sheet accts to p/l accts

ASSIGNMENT: given by a manger (who has over 15 yrs finace experience and is working toward a cpa) to his financial analyst. the company uses the accrual accounting method.

Question:
The company has had positive earnings so far this year yet the balance in the cash account is not equal to or close to ytd net income. resolve the discrepancy by reconciling YTD Net Income to the cash balance on the balance sheet.

this is asking the analyst to show a cash analysis showing significant changes explaining why NI and cash are different. my contention is that this is not even a reconciliation that makes any sence. Cash is a balance sheet account which represents the companies years to date performance. Net income is only a representation of what has happened in the current period. Also, need to consider how much NI is influenced by release of accrued reserves, etc.

PLEASE COMMENT ON VALIDITY / HOW SUCH AN ANALYSIS IS COMMON AMOUND FINANCIAL MANGERS. REMEMBER, THIS IS NOT A REQUEST TO RECONCILE CHANGES IN CASH TO NI.
WHAT DOES THIS REQUEST SAY ABOUT THE PERSON ASKING THE QUESTION.

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