Accounting 2 Assignment: Equity Method and Statement Manipulation

This assignment analyzes the application of the equity method in accounting, using Walmart as a case study to illustrate situations where the equity method might not be employed despite significant holdings in other companies. The assignment delves into the potential for manipulations within income statements, contrasting them with cash flow statements, which are considered less susceptible to manipulation due to their cash-basis accounting. The analysis uses Walmart's financial reports to support the arguments, providing examples of how sales and expenses can be presented to influence financial outcomes. The assignment concludes by highlighting the importance of understanding the differences between the income statement and cash flow statement when evaluating a company's financial performance, emphasizing that while the income statement might be subject to manipulation, the cash flow statement offers a more accurate representation of cash transactions, thereby reducing the scope for misrepresentation of financial results.

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
Author’s Note

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ACCOUNTING
Table of Contents
Equity Method Use........................................................................................................2
Manipulations in Income Statement...............................................................................2
Reference........................................................................................................................3
Appendix........................................................................................................................4

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ACCOUNTING
Equity Method Use
The business of Walmart Inc can be cited as an example which prepares the financial
statements not following the equity method of consolidation even though the company has
significant holdings in other companies. The business follows consolidation method for
demonstrating the performance of the group in the financial statements (S2.q4cdn.com.
(2020). The business does not present income from investments in the income statement
which is the requirement of equity method.
Manipulations in Income Statement
The cash flow statement is not subjected to manipulations as much as the income
statement for a company. The annual report of Walmart Inc is considered for the analysis.
The income statement of a business shows accrual system of reporting which means that even
if cash is not collected, revenue needs to be recognised. This sometimes opens the door for
manipulations which can be overstatement of sales figures which would automatically shows
higher profits which might not be the case. Similarly, the cost of operation might be
understated to shows favourable results and therefore this shows that manipulations can take
place in the profit and loss statement Core.ac.uk. (2020). Plus, the profit and loss statement is
reviewed by investors thoroughly before taking any investment decision and favourable
income statement always impresses the investors. In the case of Walmart Inc, there is a
possibility that the income might be overstated or expenses might be understated but the same
is not possible in case of cash flow statement as it follows cash basis of accounting and cash
when received is only recorded thereby sliming the chances of manipulations in the books of
accounts.

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ACCOUNTING
Reference
Core.ac.uk. (2020). Retrieved 18 April 2020, from
https://core.ac.uk/download/pdf/37749375.pdf
S2.q4cdn.com. (2020). Retrieved 18 April 2020, from
https://s2.q4cdn.com/056532643/files/doc_financials/2019/annual/Walmart-
2019-AR-Final.pdf

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ACCOUNTING
Appendix

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ACCOUNTING