The following are all true concerning transactional analysis, except,
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A. B. C. D. E.D
This method reconciles line-item changes in the balance sheet with their related income statement components to derive the cash flow consequences of the reported transactions and events.
Transactional analysis is a psychological theory developed by Eric Berne that focuses on analyzing and understanding human interactions and behaviors. It is not directly related to financial accounting or the preparation of cash flow statements. Therefore, the correct answer is A. it can be used to convert indirect method cash flow from operations to the direct method.
Let's break down each answer choice to understand why it is true or false:
A. it can be used to convert indirect method cash flow from operations to the direct method. This statement is false. Transactional analysis is not a method used to convert the indirect method of cash flow from operations to the direct method. The direct and indirect methods are two different approaches to presenting the operating activities section of the cash flow statement, and transactional analysis is not involved in this process.
B. it is a technique that can be used to create a cash flow statement for firms that do not prepare such statements in accordance with SFAS 95 and IAS 7. This statement is true. Transactional analysis can be used as a technique to create a cash flow statement for firms that do not follow the specific guidelines outlined in SFAS 95 (Statement of Financial Accounting Standards) and IAS 7 (International Accounting Standard 7). It provides a framework for understanding the relationship between accruals and their corresponding cash flows, which can be helpful in constructing a cash flow statement.
C. it helps to understand the relationship between the accrual of revenues, expenses, assets, and liabilities and their cash flow consequences. This statement is true. One of the primary objectives of transactional analysis is to understand the relationship between the accrual of revenues, expenses, assets, and liabilities and their impact on cash flows. By analyzing transactions and their effects on the financial statements, transactional analysis can provide insights into how accruals ultimately result in cash flow consequences.
D. it is a method that groups changes in the current assets and current liabilities and reconciles them to the relevant income statement items. This statement is false. Transactional analysis is not specifically a method for grouping changes in current assets and current liabilities and reconciling them to the relevant income statement items. While it can provide insights into the relationship between different financial statement items, it is not a distinct method for performing this specific task.
E. it is a method that classifies cash flows among operating, financing, and investing activities. This statement is false. Transactional analysis is not a method for classifying cash flows among operating, financing, and investing activities. The classification of cash flows into these categories is typically done in accordance with established accounting standards and principles, such as SFAS 95 and IAS 7, rather than through transactional analysis.
In summary, the incorrect statement regarding transactional analysis and its relationship to cash flow statements is A. it can be used to convert indirect method cash flow from operations to the direct method.