Cash flow question

NickyW
NickyW Registered Posts: 97 💫 🐯 💫
in AAT Level 4 (Level 8 in Scotland)
Hi there
I can't get my head round the fact that you take off profit on disposal in cash from operating activities but then add on proceeds from sale of equipment.
Can anyone help??
Nicky

Comments

  • Jon_1984
    Jon_1984 Registered Posts: 186 🎆 🐘 🎆
    Hi Nicky

    It is based around the fact that selling used assets is not the companies primary business operation/activity. No different to listing rents received (or due under sundry debtors) seperately on a TB if you were to rent out spare office space.

    Cash received is still funds coming into the fund hence being added back on later.

    Hope this helps

    Jon
  • PGM
    PGM Registered Posts: 1,954
    NickyW wrote: »
    Hi there
    I can't get my head round the fact that you take off profit on disposal in cash from operating activities but then add on proceeds from sale of equipment.
    Can anyone help??
    Nicky

    Because profit/loss on sale is just an account adjustment. Imagine it had been a loss on sale, ie sold for less than depreciated value. The figure would be negative, indicating money going out?! Which would make no sense.

    So you have to reverse the amount showing profit/loss on sale. Ignore that, and show the actual flow of cash.

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