Accounting Homework: Cash Flow Analysis and Statement Review

This assignment analyzes the cash flow statements of Pepsico and Apple, focusing on the indirect method. The student identifies inventory changes as an item adjusted in net income to calculate cash flow from operating activities, explaining its impact and the need for adjustment. The assignment also confirms that Apple uses the indirect method. The analysis includes in-text citations and a reference page, demonstrating an understanding of financial statement analysis and the importance of cash flow in assessing a company's financial health. The assignment adheres to the requirements of the brief, providing clear explanations and supporting evidence from the companies' financial reports to answer the questions about cash flow analysis. This assignment is provided by a student on Desklib, a platform providing AI-based study tools for students.

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

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Table of Contents
Answer to Question 1...................................................................................................................2
Answer to Question 2...................................................................................................................2
References....................................................................................................................................4

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Answer to Question 1
An item that was adjusted in the net income to calculate the cash flow from operating
activities is the changes in the level of inventory of the company. The increase in the inventory
levels is deducted from the Net Income in case of Pepsico. This reduced the balance in the net
income to determine the cash flow provided by operating activities. The purpose of the cash flow
statement is to determine how the cash balances have changed during the course of an year. Any
increase in the inventory level involves an outflow of cash for a company and hence needs to be
reduced from the net income of the company (Robinson, 2020). This means that a company
invested increased funds in inventory which cannot be put to use for other purposes. Hence, in
order to obtain the accurate cash flow, the amount of outflow involved in increased inventory is
taken as a deduction.
Source: Pesico.com 2020
Answer to Question 2
Yes, it is evident that Apple uses indirect method of cash flow in calculating its annual
cash flow. This is because the company takes the net income of the entity and makes necessary

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adjustments in determining the cash flow from operations. While cash flows are important for a
company, it cannot be said that they are the only means of calculating the profitability of a
company (Lewellen & Lewellen, 2016). The net income is taken from the financial statements of
the business but not from the bank statement. While it determines the manner in which the cash
flow of a company is happening, it need not necessarily educate the investors (Apple.com, 2020).

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References
(2020). Apple.com. Retrieved 4 April 2020, from
https://www.apple.com/newsroom/pdfs/Q4%20FY19%20Consolidated%20Financial
%20Statements.pdf
(2020). Pepsico.com. Retrieved 4 April 2020, from
https://www.pepsico.com/docs/album/annual-reports/pepsico-inc-2019-annual-
report.pdf?sfvrsn=ea470b5_2
Lewellen, J., & Lewellen, K. (2016). Investment and cash flow: New evidence. Journal of
Financial and Quantitative Analysis, 51(4), 1135-1164.
Robinson, T. R. (2020). International financial statement analysis. John Wiley & Sons.