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<blockquote data-quote="Ricochet1a" data-source="post: 868116" data-attributes="member: 22880"><p>On a balance sheet, both sides must be looked at - therefore anyone who knows what they are looking at, can easily see that a sudden infusion of cash isn't due to income from business operations, but rather assuming debt. Anyone just looking at an asset account and not taking a look at the other side of the ledger is an absolute fool. </p><p></p><p>In a statement of cash flows, taking on debt would definately show as a source of cash, but again, it is identified from the source. </p><p></p><p>Properly prepared financial statements are clear as to the sources and flows of assets and expenses. It is only when accounting isn't done according to GAAP that deception can occur. </p><p></p><p>A possible source of manipulating income is varying depreciation from one year to the next. If depreciation isn't done on a straight line basis, then in times of company profitability, depreciation can be accelerated, to offset those profits. Likewise, in times of company losses, depreciation can be deferred, to limit the losses showing on a particular annual statement. But even here, the assets of the company are listed with the depreciation method used. One would need to look at financial statements going back 3 to 5 years to establish a trend in how depreciation is performed and it impact on stated profitability. </p><p></p><p>If depreciation is done too quickly, the business won't look as profitable as it should. Likewise, if depreciation is done too slowly, the company would have profitability that is artificially inflated. By looking at the methods of depreciation, an astute analyst can easily determine if any games are being played in the preparation of the statements. This is why there are CPA's and clear statutes regarding deceptive accounting practices.</p></blockquote><p></p>
[QUOTE="Ricochet1a, post: 868116, member: 22880"] On a balance sheet, both sides must be looked at - therefore anyone who knows what they are looking at, can easily see that a sudden infusion of cash isn't due to income from business operations, but rather assuming debt. Anyone just looking at an asset account and not taking a look at the other side of the ledger is an absolute fool. In a statement of cash flows, taking on debt would definately show as a source of cash, but again, it is identified from the source. Properly prepared financial statements are clear as to the sources and flows of assets and expenses. It is only when accounting isn't done according to GAAP that deception can occur. A possible source of manipulating income is varying depreciation from one year to the next. If depreciation isn't done on a straight line basis, then in times of company profitability, depreciation can be accelerated, to offset those profits. Likewise, in times of company losses, depreciation can be deferred, to limit the losses showing on a particular annual statement. But even here, the assets of the company are listed with the depreciation method used. One would need to look at financial statements going back 3 to 5 years to establish a trend in how depreciation is performed and it impact on stated profitability. If depreciation is done too quickly, the business won't look as profitable as it should. Likewise, if depreciation is done too slowly, the company would have profitability that is artificially inflated. By looking at the methods of depreciation, an astute analyst can easily determine if any games are being played in the preparation of the statements. This is why there are CPA's and clear statutes regarding deceptive accounting practices. [/QUOTE]
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