Why do you deduct depreciation from expenses in cash flow forecast ? - budgeting

topcat
topcat Registered Posts: 452
in AAT Level 4 (Level 8 in Scotland)
Hi,

Just had a question on a cash flow forecast and depreciation was included in the expenses each month. I was preparing the cash flow forecast for august and the answer deducts depreciation from cash flow and I have no idea why?

Sure depreciation is an expense..

Exam is tomorrow so any help or ideas appreciated

Thanks

--edit just had a quick through is it because it is a "non cash" item?

Comments

  • Diddy Mau
    Diddy Mau Registered Posts: 238 Beyond epic contributor 🧙‍♂️
    Yeah think your right. Its non-cash item, they do this to make sure you understand.

    Keep written answers short to the point. If you have time expand. Remember whats easier for the examiner to read, bullet points or a never ending essay (thts what I was told)

    Oh and GOOD LUCK:thumbup1:
  • topcat
    topcat Registered Posts: 452
    Diddy Mau wrote: »
    Yeah think your right. Its non-cash item, they do this to make sure you understand.

    Keep written answers short to the point. If you have time expand. Remember whats easier for the examiner to read, bullet points or a never ending essay (thts what I was told)

    Oh and GOOD LUCK:thumbup1:

    thank you !

    good tips as well
  • CeeJaySix
    CeeJaySix Registered Posts: 645
    Topcat, absolutely, remember back to when we were talking about the corporation tax amount included in the cashflow statement? As you are starting from operating profit for your cashflow statement, you have to adjust for all items where the physical amount of cash movement is different to that in the accounts - for tax this is usually an adjustment as SOME cash does move, but for non-cash items such as depreciation NO cash moves, so you have to reverse it all out.
  • topcat
    topcat Registered Posts: 452
    CeeJaySix wrote: »
    Topcat, absolutely, remember back to when we were talking about the corporation tax amount included in the cashflow statement? As you are starting from operating profit for your cashflow statement, you have to adjust for all items where the physical amount of cash movement is different to that in the accounts - for tax this is usually an adjustment as SOME cash does move, but for non-cash items such as depreciation NO cash moves, so you have to reverse it all out.

    Thanks a lot Ceejay for great explanation !

Categories

Privacy Policy