Unit 15- cash management question
twinpeaks
Registered Posts: 5 New contributor 🐸
Please can someone help me? I had to retake this unit and one of the questions I had to answer was this:
Give reasons why a cash flow based on actual cash in and actual cash out might differ from a profit and loss account?
The reasons I gave were:
Non cash expenses, purchase of fixed assets,sale of fixed assets.
Can someone tell me if these are correct and if not, what are the reasons. I do not want to come up against it again without knowing what they are.
Thank you
Give reasons why a cash flow based on actual cash in and actual cash out might differ from a profit and loss account?
The reasons I gave were:
Non cash expenses, purchase of fixed assets,sale of fixed assets.
Can someone tell me if these are correct and if not, what are the reasons. I do not want to come up against it again without knowing what they are.
Thank you
0
Comments
-
Non cash expenses, purchase of fixed assets,sale of fixed assets.
Can you think of any more?
What about pre-payments, accruals, credit puchases and credit sales?
[size=+2] How [/size]might they contribute to a difference?Sandy
sandy@sandyhood.com
www.sandyhood.com0 -
Hi Sandy, thanks for replying. Wasn't too sure about the hows. Please explain. I think I got muddled or rather brain just shut down and I made a mess of it. Dear God, that means I am going to fail this.0
-
Please can someone help me? I had to retake this unit and one of the questions I had to answer was this:
Give reasons why a cash flow based on actual cash in and actual cash out might differ from a profit and loss account?
The reasons I gave were:
Non cash expenses, purchase of fixed assets,sale of fixed assets.
Can someone tell me if these are correct and if not, what are the reasons. I do not want to come up against it again without knowing what they are.
Thank you
Profit (Loss) is derived from Income less expenses.
There are some income that are not directly related to receipts of Cash - eg profit on a sale of an asset.
however from the actual cash receipts point of view, the sales value of the fixed assets is received in cash
Certain expenses are only book transactions and does not involve Cash - eg Depreciation. It reduces profit but does not reduce cash
same for expense accruals - it increases the expense - thus reduce the profit but does not affect th actual cash balance.
similarly payment or reducing your creditors (bank loan) does not affect your profit but reduces your actual cash
I am sure now you can work out the effects of prepayment and purchase of new assets on cash and profits.0 -
Stop panicking
I am sure you wouldn't have got to this level without knowing the answers to questions such as:- How does the purchase of a fixed asset cause the net cash flow and the profit (or loss) to be different?
- How does the sale of a fixed asset cause the net cash flow and the profit (or loss) to be different?
- How does depreciation of fixed assets cause the net cash flow and the profit (or loss) to be different?
Then do the same with the other possible causes.Sandy
sandy@sandyhood.com
www.sandyhood.com0 -
Thank you Sandy and SDV for your help. I have gone through it and I think I get it now.For example, the purchase of a fixed asset is usually a large cash outflow but the only amount charged to the profit and loss account is the annual depreciation and not the entire cost of the asset. Likewise the non cash expenses such as provision for doubtful debts are charged to profit and loss as expenses they don't affect the cash balance of the business.
I hope thats correct. Thank you again, much appreciated.0 -
GoodSandy
sandy@sandyhood.com
www.sandyhood.com0
Categories
- All Categories
- 1.2K Books to buy and sell
- 2.3K General discussion
- 12.5K For AAT students
- 323 NEW! Qualifications 2022
- 165 General Qualifications 2022 discussion
- 11 AAT Level 2 Certificate in Accounting
- 56 AAT Level 3 Diploma in Accounting
- 88 AAT Level 4 Diploma in Professional Accounting
- 8.8K For accounting professionals
- 23 coronavirus (Covid-19)
- 272 VAT
- 92 Software
- 273 Tax
- 135 Bookkeeping
- 7.2K General accounting discussion
- 200 AAT member discussion
- 3.8K For everyone
- 38 AAT news and announcements
- 345 Feedback for AAT
- 2.8K Chat and off-topic discussion
- 582 Job postings
- 16 Who can benefit from AAT?
- 36 Where can AAT take me?
- 42 Getting started with AAT
- 26 Finding an AAT training provider
- 48 Distance learning and other ways to study AAT
- 25 Apprenticeships
- 66 AAT membership