Non-Cash Items in Cashflow Statement

jewels.p

I am trying to get to grips with Cash Flow Statements. I don't get why you deduct a gain on sale and add a loss on sale. Why are they in the Cashflow Statement if there is no cash involved? Same with Depreciation

sdv

You start the cash flow statement from:

Net Profit from Operating Activities (from a profit & Loss a/c)

This figure is arrived at after deducting depreication and therefore depreciation MUST be added back to it because depreciation is a non-cash enrty.

The same explanation for Profit/Loss on the sale of fixed assest.

I hope this helps.

Steve Collings

sdv wrote: »

You start the cash flow statement from:

Net Profit from Operating Activities (from a profit & Loss a/c)

This figure is arrived at after deducting depreication and therefore depreciation MUST be added back to it because depreciation is a non-cash enrty.

The same explanation for Profit/Loss on the sale of fixed assest.

I hope this helps.

This is an excellent answer to a question that is commonly asked by DFS students!

Remember what the statement of cash flows is doing - it is turning operating profit and the statement of financial position into a statement of cash flows i.e. going from the 'accruals' basis of accounting to a 'cash' basis.

You might find my article on this of interest.


Kind regards
Steve

jewels.p

sdv wrote: »

You start the cash flow statement from:

Net Profit from Operating Activities (from a profit & Loss a/c)

This figure is arrived at after deducting depreication and therefore depreciation MUST be added back to it because depreciation is a non-cash enrty.

The same explanation for Profit/Loss on the sale of fixed assest.

I hope this helps.

Yes it does. Thankyou

jewels.p

Steve Collings wrote: »

This is an excellent answer to a question that is commonly asked by DFS students!

Remember what the statement of cash flows is doing - it is turning operating profit and the statement of financial position into a statement of cash flows i.e. going from the 'accruals' basis of accounting to a 'cash' basis.

You might find my article on this of interest.


Kind regards
Steve

Thanks Steve. I have printed that off.