Financial Accounting: In an Economic Context

KEY TERMS

Note: Definitions for these terms are provided in the glossary at the end of this text.

Cash equivalents (p. 641)

Direct method (p. 642)

Financial flexibility (p. 646)

Financing activities (p. 644)

Indirect method (p. 642)

Investing activities (p. 644)

Operating activities (p. 642)

Solvency (p. 646)

Window dress (p. 649)

ETHICS in the Real World

MicroStrategy, a software maker in the business-to-business Internet industry, was introduced at the beginning of the chapter. Since it revised its earnings numbers downward, the company continued to report net losses for some time. Clearly, company management was under considerable pressure from shareholders, bankers, and the investment community to turn things around. While the company's cash flow situation appeared somewhat more promising, a closer look at the numbers indicates that net cash from operations was buoyed by huge increases in the company's accounts payable balance. It is possible, for example, that MicroStrategy intentionally delayed some payments to suppliers in an effort to put as positive a spin as possible on the company's cash flow position.

ETHICAL ISSUE Is it ethical for a company in weak financial condition to manage the timing of its cash receipts and payments to delay signaling that weakness to the public?

INTERNET RESEARCH EXERCISE

General Motors was once the largest and most dominant auto manufacturer in the world. In an unprecedented move, the U.S. government stepped in to salvage the business, funding ...