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Error In Cash Flow Statement

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  • Error In Cash Flow Statement

    Peachtree seems to provide an erroneous Cash Flow Statement when
    dealing with the gain or loss on the sale of an asset. (I am using
    Peachtree Complete 2005.)

    Let me give an example. Suppose that only one transaction occurs in a
    given monthly period, namely the sale of an asset at a loss. A fixed asset
    that originally cost 18000.00 has been depreciated by 12450.00 and is
    disposed of for 5000.00. This results in a loss on sale of 550.00. The
    journal entry for this would be as follows:

    Debit

    Cash 5000.00
    Accumulated Depreciation 12450.00
    Loss on Sale of Asset 550.00

    Credit

    Fixed Asset 18000.00


    Because there is a decrease in a fixed asset account, the investment
    section of the Cash Flow Statement should indicate this change as a
    positive change in cash.

    Also, according to the accepted rules of cash flow statements, the
    loss on the sale, which is an expense, should be added back to the
    net income for the period.

    Neither of these happens with the Peachtree Cash Flow Report.

    Unfortunately, the Peachtree manual does not elaborate on just how
    the Cash Flow Statement is prepared in this or any other situation.

    Using "ordinary" journal entries, however, the Cash Flow Statement does
    give a proper and accurate report for a given period. I have only noticed
    this anomaly with the situation of gain or loss on the sale of assets.

    Does anyone have any thoughts on this matter?

    Frank Peters

  • #2
    True, the loss should be added back as an adjustment to net income for the period. The proceeds from the sale should be shown under Investments. However, I know of no other accounting software that includes a standard Cash Flow (or Statement of Changes) that can display this correctly; itís usually prepared outside of the accounting software.

    You can understand the problem, right? The proceeds form the disposition would have to be captured separately which is not practical within the accounting software since that would create problems in the cash account and reconciliation.

    Comment


    • #3
      The user documentation for Peachtree should at least make some mention
      of this difficulty.

      Peachtree can export balance sheet data directly to an Excel spreadsheet
      and this should facilitate the creation of a manual cash flow statement,
      as you indicate, for any period in which such a transaction does occur.

      Comment

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