Paraton Outdoor Life, Inc. A Case Study on Reported Cash Flow and Gaps in Financial Statements

Abstract

Managers and analysts are trained to validate the cash balance in the balance sheet with the cash balance in the bank, and to rely on the cash flow statement rather than the income statement and the balance sheet. The purpose of this case study is to develop a case study to validate a stepped approach to understand the interaction of the various income statement and the balance sheet accounting transactions captured in the cash flow statement. The decomposition of the various components of the cash flow statements not only reveals these interactions but also helps to understand the interplay among these components of the cash flow statement. It should help both the internal and external analysts to develop a modular pathway for each accounting transaction and identify any earning warning signals about a firm’s attempts to manipulate the change in the cash account.