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Note: Unlike some discussion memos, this example did not require any computations of amounts. You should direct your memo to the appropriate parties and not just copy the headings below and be sure to address the specific issues that the discussion memo asks you to address. Also, this example references authoritative guidance in FASB’s Accounting Standard’s Codification (ASC) and nonauthoritative guidance outside the codification. You are required to cite any authoritative ASC guidance on point and are not required to cite any nonauthoritative guidance, but can do so if you choose. If you choose to cite other guidance as well, you must include appropriate footnote citations to such other guidance. March 28, 2012 To: The Board of Directors and Audit Committee From: Mr. Bell, Controller RE: Cash Flows Statement Treatment of Advances from Customers Background The members of the Board of Directors and the Audit Committee have asked me to conduct some research on an accounting issue regarding the presentation of certain cash flows in the statement of cash flows. The question relates to what is the appropriate classification of an advance payment that our company, Business Services, Inc, a management consulting firm, has received from a large customer for services to be purchased in the future under a long-term contract arrangement. We negotiated this advance payment arrangement with our largest customer because the customer is requiring us to devote a large amount of resources to providing future services to them and this would require us to ramp up our hiring to accommodate their service needs. As you are aware, we are considering how to best reflect in the cash flow statement this material customer advance received during the fourth quarter of this year. As we previously have discussed, some concerns have been raised regarding whether such a customer advance for future services should be treated as and operating or a financing cash flow under…