Non-Cash Items in Cashflow Statement

jewels.p
jewels.p Registered Posts: 1,774
in AAT Level 4 (Level 8 in Scotland)
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

Comments

  • sdv
    sdv Registered Posts: 585
    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
    Steve Collings Registered Posts: 997
    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
    jewels.p Registered Posts: 1,774
    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
    jewels.p Registered Posts: 1,774
    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.

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