Cooper Machinery, Inc.

Abstract

This case emphasizes one of the most important analytical tools that an accounting graduate should possess. It is the opinion of the authors that an accounting graduate should be able to convert from the accrual basis of accounting to the cash basis. A solid understanding of this area and others, such as time value of money concepts, is necessary in order for one to consider himself/herself accounting literate. The purpose of this case is to evaluate and help students understand the relationship between the balance sheet, statement of income, and statement of cash flows in addition to the theory and mechanics of converting from the accrual basis of accounting to the cash basis. Furthermore, it helps students develop analytical skills and form an opinion about the usefulness of the direct method presentation of the statement of cash flows compared to the indirect method. Thus students are forced to complete missing information on the balance sheet, statement of income, and statement of cash flow by deducing which transactions occurred. The assumption used in the case is that the company employs the accrual basis of accounting. There were no cash sales or expenses paid in cash.