Posted: February 11th, 2016

The majority stockholder of a small corporation tells you, the company’s CPA, to “forget about preparing that cash flow statement” because he needs to take financial statements

The majority stockholder of a small corporation tells you, the company’s CPA, to “forget about preparing that cash flow statement” because he needs to take financial statements to the bank immediately. “Besides,” he says, “we have more cash in the bank now than we did last year at this time.” As the controller for the company, you are required to comply with Generally Accepted Accounting Principles (GAAP). As an employee, you need to comply with the boss.

In your role as company controller, discuss what you should do to comply with both masters. As part of your discussion, explain what is missing from the majority stockholder’s understanding of how the statement of cash flows is used, for decision-making by both internal and external entities.