How a company define cash on the balance sheet|Quick homework help

Posted: March 10th, 2023

 Read a selection of your colleagues’ postings.

BY DAY 5

Respond to two or more of your colleagues’ postings in one or more of the following ways:

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  • Ask a probing question.
  • Share an insight from having read your colleague’s posting.
  • Offer and support an opinion.
  • Validate an idea with your own experience.
  • Make a suggestion.
  • Expand on your colleague’s posting. Student 1

    Alexa Robinson

    How did the company define cash on the balance sheet?

    Target defines cash as a current asset and breaks it down into cash and cash equivalents including short term investments of $130 million and $194 million. These are assets which, in addition to cash, can be quickly converted to cash to cover expenses (Spiceland, Nelson & Thomas, 2020). Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase (Target SEC, 2013). These investments were $130 million and $194 million at February 2, 2013 and January 28, 2012, respectively (Target SEC, 2013). Cash equivalents also include amounts due from third-party financial institutions for credit and debit card transactions. These receivables typically settle in less than five days and were $371 million and $330 million at February 2, 2013 and January 28, 2012, respectively (Target SEC, 2013). Payables due to Visa resulting from the use of Target Visa Cards are included within cash equivalents and were $34 million and $35 million at February 2, 2013 and January 28, 2012, respectively (Target SEC, 2013).

    What definition of funds did they use in the operating activities section of the statement of cash flows?

    For operating activities, Target took their net earnings and adjusted for non-cash operating activities that will effect net earnings under the reconciliation to cash flow section. To determine the amount of cash and cash equivalents at the end of the period the company took the cash flow provided by operating activities an subtracted the cash flow required for investing and financing activities. Cash and cash equivalents are cash holdings and investment vehicles valued using the Net Asset Value (NAV) provided by the administrator of the fund (Target SEC, 2013). The Net Asset Value for the investment vehicles is based on the value of the underlying assets owned by the fund minus applicable costs and liabilities, and then divided by the number of shares outstanding (Target SEC, 2013). This cash and cash equivalents is the same as what is used for the balance sheet.

    Determine if the ending balance on the statement of cash flows is the same as the cash balance on the balance sheet. If not, explain why these two amounts are not equal.

    Yes, the cash and cash equivalent amount at the end of the period on the statement of cash flow is the same amount used in the cash and cash equivalent line at the top of the balance sheet.

    Is there an advantage to using the same definition of funds on both of these statements? Why or why not?

    Yes, this makes it easier to compare these statements and notice any trends affecting financial performance (Spiceland, Nelson & Thomas, 2020). Internal review of these statements could show an area where procedural or equipment changes could produce higher earnings. And if you can easily follow the funds across all three statements, it will be simpler to tell at what step in the company’s process these changes need to occur. This will also make any ratio comparisons more accurate and easy to interpret, such as the cash ratio which measures the company’s ability to liquidate to cover short-term debts (Spiceland, Nelson & Thomas, 2020).

     

     

    Student 2

    Peaches Patchette Evette Ealy

    Week 2: Inventories: Measurements

    Discussion: Defining Cash Flows

    The Home Depot Inc. 2022 year-end Balance Sheet list cash as an asset under Cash and cash equivalents. Home Depot cash on hand is defined as cash deposits at financial institutions that can immediately be withdrawn at any time, and investments maturing in one year or less that are highly liquid and therefore regarded as cash equivalents and reported with cash line items. Cash and cash equivalents include other kinds of accounts that have the general characteristics of demand deposits. This also includes short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. This excludes cash and cash equivalents within a disposal group and discontinued operation. Home Depot Inc. cash and cash equivalents increased from 2020 to 2021, but then slightly decreased from 2021 to 2022 not reaching 2020 level.

    The Home Depot Inc. 2022 year-end Statement of Cash Flows list cash under Net cash, which is provided by the company’s operating activities. Net cash is the amount of cash inflow, or outflow, from operating activities, excluding discontinued operations. Operating activity cash flows include transactions, adjustments, and changes in value not defined as investing or financing activities. Home Depot Inc. net cash provided by operating activities increased from 2020 to 2021, but then slightly decreased from 2021 to 2022. The Home Depot Inc. balance sheets displays what the company owns, and what it owes at a fixed point in time. Their cash flow statements show the exchange of money between a company and the outside world over a period of time as well.

SOLUTION

To answer your question, I would assume that Target used the same definition of cash and cash equivalents in the operating activities section of the statement of cash flows. However, the operating activities section of the statement of cash flows focuses on the cash inflows and outflows related to a company’s primary business operations, such as revenue, expenses, and working capital changes. Therefore, the funds referred to in this section would be the net cash provided or used by the company’s operating activities, as opposed to the broader definition of cash and cash equivalents used on the balance sheet.

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