Your assignment
Role: Junior financial analyst preparing a review memo for Northstar's controller and credit manager
Deliverable: A two-page review memo with a corrected reconciliation, three account rollforwards, a direct-method cross-check, one control limitation, and separate accounting-preparer and credit-analysis conclusions.
Evidence basis: fictional
Evaluation criteria
- technical accuracy (35%): Derives all three balance changes and signs, preserves the depreciation addback meaning, and reaches the supported $10,000 subtotal.
- reconciliation and controls (30%): Connects the indirect and direct paths without double counting and identifies at least one scope or noncash-movement control.
- interpretation (20%): Separates verified arithmetic from bounded questions about collection, Inventory movement, supplier settlement, and cash conversion.
- communication (15%): Uses clear labels, units, period references, and audience-specific conclusions without unsupported ranking or causal claims.
Your role and decision
Northstar's controller has received a draft indirect operating reconciliation that adds every opening-to-ending increase. The draft reports $22,000 operating cash flow. A separate cash schedule reports $13,000 customer collections and $3,000 supplier payments.
You are the junior analyst responsible for deciding whether the draft can enter the year-end review packet. Your memo will also go to a credit manager who wants to understand why operating cash flow is below net income without treating that difference as an automatic quality verdict.
Evidence packet
Use the supplied fictional dataset and its schema. It includes $12,000 net income, $3,000 depreciation, opening and ending Receivables, Inventory, and Payables, the two direct cash rows, and an explicit list of movements excluded from the bounded facts.
The direct path is $13,000 collections minus $3,000 supplier payments, or $10,000 operating cash flow. The direct and indirect methods are two derivations of that one subtotal. Agreement is a cross-check; the two results are not separate cash flows available to add.
The packet does not include aging schedules, Inventory turnover, overdue- Payables detail, forecasts, covenants, or peer data. Those absences are part of the decision: distinguish what the reconciliation proves from what a cash- conversion conclusion would still require.
Required work
- Reconstruct each account rollforward and compute its signed cash adjustment.
- Correct the indirect reconciliation and identify every error in the $22,000 draft without calling the correction a new journal entry.
- Cross-check the result against direct receipts and payments and explain why the two $10,000 results cannot be added together.
- State one control that must precede use of raw opening-to-ending changes in a real filing.
- Give the controller a preparation conclusion and the credit manager a separate, bounded interpretation naming the next evidence you would request.
Constraints
Use Year 2, whole USD, the stated single-entity scope, and the exclusion list. Do not invent a write-off, acquisition, foreign-currency effect, overdue balance, or management motive. Do not infer that positive or negative adjustment signs are favorable or unfavorable by themselves.
Evaluation
Technical accuracy and controls carry 65 percent of the score. Interpretation and communication carry 35 percent. A numerically correct memo that omits the scope control or gives an unsupported credit conclusion is incomplete.