QuickServe, a chain of convenience stores, was experiencing some serious cash flow difficulties because of rapid growth. The company did not generate sufficient cash from operating activities to finance its new stores, and creditors were not willing to lend money because the company had not produced any income for the previous three years. The new controller for QuickServe pro-posed a reduction in the estimated life of store equipment to increase depreciation expense; thus, “we can improve cash flows from operating activities because depreciation expense is added back on the statement of cash flows.” Other executives were not sure that this was a good idea because the increase in depreciation would make it more difficult to report positive earnings: “Without income, the bank will never lend us money.”

What action would you recommend for QuickServe? Why?

  • CreatedFebruary 27, 2015
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