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Cash Flow Accounting Has Blind Spots

With all the accounting scandals in the news, it is tempting to ask: Why cant companies report on a simple cash-flow basis? This is sometimes referred to as shoebox accounting, as money is put in the shoebox as it is received, and taken out as it is spent. If you have more money in the shoebox at the end of the year, then you are ahead of the game for that year.

In this column, I apply the shoebox method to the property-casualty insurance industry in 2001, and come to two clear conclusions:

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