Powerful but simple Tools

Cash flow Statement on a direct method

・The role of cash flow statement:

• Cash flow statement (or statement of cash flows, hereafter called “C/S”) is prepared either through direct or indirect method. But in actuality, almost all accounting systems available in the market can generate C/S through indirect method only with few exceptions like 3D Boki. Then, what's the problem with indirect method C/S ? Let's get back to the role of C/S. It is thought to highlight the major activities that directly and indirectly impact cash flows and hence affect the overall cash balance of a business entity. Good ! This should be one of the reasons why C/S is regarded as a valuable analytical tool for enterprise valuation. But how can you know the major activities that generate positive cash flows from operating activities whose C/S is prepared through indirect method ? We need to look into this further.
• C/S is divided into three sections, operating, investing and financing activities. Among those, the last two sections are required to be stated on a gross basis, namely, direct method. On the other hand, the operating section may be stated either through direct or indirect method. However, operating activities are, without doubt, the central source which brings cash inflow to a business enterprise.

・Form of cash flow statement – direct method:

• In C/S – indirect method, operating activities section appears as follows;
  
  Ⅰ Cash flow from operating activities

  	Net income	XXX
  	Depreciation	XXX
  	Provision for doubtful accounts	XXX
  	Increase in accounts receivable	- XXX
  	Decrease in inventory	XXX
  	Decrease in accounts payable	- XXX
  	・・・・・・・・・・・・・・・・	XXX
  	Sub-total	XXX
  	Income taxes payable	XXX
  	Net cash provided by operating activities	XXX

• Now, let us focus on “Increase in accounts receivable” and “Decrease in accounts payable” stated above. Imagine a company engaging in import and sales of merchandise A, production and sales of product B, and providing service C. You cannot tell how much cash each of A, B, C business provides by reading the C/S above. Assume that the company reports cash inflow of 100. The cash inflows from A, B and C may be 25, 60 and 15, or 110, minus 50 and 40, respectively. The valuation of the company could change dramatically, depending on, for example, the market growth prospect of A, B and C. The increase and/or decrease in receivables and payables (indirect method) would not disclose you any of such distinction.

・Form of cash flow statement - indirect method:

• On the other hand, in C/S - direct method made by 3D Boki, operating activities section would take the following form;
  
  Ⅰ Cash flow from operating activities

  	Cash collection from sale of imported goods A	XXX
  	Cash collection from sale of product B	XXX
  	Cash collection from sale of service C	XXX
  	Cash payment for purchase of imported goods A	- XXX
  	Cash payment for labor cost of product B	- XXX
  	Cash payment for purchase of raw materials of product B	- XXX
  	Cash payment for other manufacturing cost of product B	- XXX
  	Cash payment for cost of service C	- XXX
  	Cash payment for other sales and administrative expenses	- XXX
  	・・・・・・・・・・・・・・・・	XXX
  	Sub-total	XXX
  	Income taxes payable	XXX
  	Net cash provided by operating activities	XXX

• Although titles and order of the stated items could be varied, please note here, without going into too much detail, that the C/S section discloses iformation that permits you match collection and payment by A, B and C. 3D Boki makes it possible. Further, if you wish, 3D Boki can even prepare cash flow from operating activities by department.

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Report of revenue vs cost by project or job

• Cost control and profit control is naturally of great concern for large enterprises. Smaller enterprises may need even more attention to this area. 3D Boki has the capability of generating a report which contrasts revenue and cost of revenue, contributory profit and contributory profit ratio to revenue on a by-project (job) basis.
• This kind of information may be particulary effective in the following examples. A travel agency may want to analyze profit by tour (job). A dealer of such high-price goods as jewels would need to know profit by piece.
• It is at your disposition how to determine the format of your project code. You can temporarily input “-” for an example as a project code and later after making this matching report, you can input the final project code (see the row 3 and 4 in the illustration below). You can also opt to leave the project code blank at time of input in BK, JV, AP and AR sheet. SvC sheet lists up those items as a fictitious group indicating “Blank Project No.” (see row 6 through 110 in the illustration below).
• This report is made in the following way; First, posting items with revenue and cost of revenue accounts from BK, JV, AP and AR sheets to SvC sheet. Second, sorting the posted items on the SvC sheet using project code as the first key. Thirs, making sub-totals by project code and finally grand total. See the above illustration for what fields are posted and included in the SvC report.
• You can use Lense Jump command on this SvC sheet, too. This assists you make corrections and/or reassignments of project code by moving you to the row of the sheet where the item on SvC came from.

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Tool for matching receipt･payment against AR･AP

• Accounts receivable is a stage where numerous transactions come in to play and exit. Due to its materiality, auditors, too, allocate longer hours to this area. Exactly the same applyies to accounts payable. You have to keep these accounts completely analyzed, but in practice, the volume of work would not let you accomplish it easily on a timely basis. This tool is made for you to cope with this challenge.
• This matching tool assists you identify the sales invoices correponding to a receipt or puchase invoices corresponding to a payment, taking the opportunity of cash receipt or cash payment. And 3D Boki changes or fills the applicable columns of those identified invoices on the AR or AP registers with the information taken from the dialog of this tool. This is one of the tools which supports 3D Boki's commitment, “Validation oriented accounting practices”.
• The matching work can be done based on the brought forward amount exactly analized. To search sales invoices corresponding to a cash receipt, you look into the set of invoices which have been issued to the customer prior to the receipt. But what shall we do if we do not have the set of invoices input by customer ? There is no other way than to input them, naturally. Try matching step by step from recent receipts to remote ones and sort out unquestionable items in order to focus on the tough ones. There are often cases where unreconcilable differences are highlighted between the result of matching and the book balance. If the difference is reasonably small, or aged at least as old as negative prescription, or economically unfeasible to make it smaller, etc, then, you should make the book balance agree with the result of matching work by making some reconciliation journal entry with authoritative approval. This tool is effective in such an investigative project.

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Easy verification of VAT and Withholding tax

3D Boki makes verification of VAT and withholding income tax notably easier and securer than other accounting systems for the following reasons;；

・VAT verification:

VAT paid is recorded in the same row of BK, JV and AP as the underlying taxable transaction, and VAT received is recorded also in the same row of BK, JV and AR as the underlying taxable transaction, maintaining one-to-one relationship between the two as described earlier.

This makes it possible to present such amounts in account analysis as With-VAT, VAT, JE(without VAT) and the difference between the recoded VAT and the calculated VAT applying the standard VAT rate. A glance at this difference column will tell you instantly if an adjustment is necessary or not. The author has made it a routine when making a VAT return to make account analysis for all the accounts covering the whole fiscal year. More or less one hour was enough to complete the procedure and it gave him a lot of assurance in making the tax return.

・Withholding tax verification:

Obligation to withhold is imposed at time of payment, so, withholding income tax is recorded on BK sheet only, and in the same row of BK as the underlying taxable payment maintaining one-to-one relationship under 3D Boki system.

This makes it possible to present such amounts in account analysis as With-VAT and Withholding Tax together with other items described in the preceding paragraph. By comparing the With-VAT amount with withholding tax amount, you can easily detect items which needs adjustment. This function also facilitates preparation of regular information return to the tax office which requires statement of taxable amount in contrast with withheld tax amount, as mentioned earlier in the preceding page.

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Account Analysis tool

• Account analysis or general ledger account analysis is one of the most important auditing techniques. It is a procedure to itemize elements which makes up a balance sheet account amount at the end of a specified period of time or an income statement account amount for a specified period of time. It serves as a medium to tie in an account balance with such external evidential matters as puchase invoices or receipts issued by the vendor. Conversely, without an account analysis, you cannot establish the account balance with its external evidences. It is a central pillar which supports our validation oriented accounting practice.
• Account analysis is indispensable when being audited. And it is even more valuable when discharging responsibilities of accounting. Account analysis by an accountant himself reveals such accounting errors as classification errors, duplicate entries of an invoice, etc. With the practice using this tool whenever you notice anything to be clarified, you can keep your books constantly polished up.
• 3D Boki is capable of account analysis for all BS (Balance sheet) and PL (income statement) accounts. You have the freedom of selecting a period of time for your analysis for any of those accounts. You may want to have an account analysis at the end of the current month or some prior month, current month transactions only or a month prior to the current month, multiple months prior to the current month. 3D Boki accommodates all those.
• BS account analysis is imcomplete if prior month end balance is not analized. To compensate for this, 3D Boki recommends keeping ANL sheet to maintain analysis of balance at beginning of the current month, increase and decrease seperately during the month, and the balance at end of the current month on the basis of evidences which initiated the journal entry. If the analysis at beginning of the month is unavailable, that is what you have to make, unfortunately. However, account analysis tool of 3D Boki will be your able assistant in this otherwise difficult undertaking.
• Further, 3D Boki has AP & AR sheets in the format as described in the preceding paragraph which themselves are account analyses of those largest BS accounts.
• Another BS accounts are Property and equipments and intangible fixed assets. Our depreciation system are here for you in the format of account analysis ready to establish for themselves. See the Depreciation page on this site.

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