Can someone put this in English please? CM practice exam
Options
topcat
Registered Posts: 427
Practice exam 2 questions 1.2:
True of false question:
"Profit differs to cash due to non-cash adjustments processed through the financial statements"
urm what?
Answer below but i dont understand what questions 1 and 2 mean
True of false question:
"Profit differs to cash due to non-cash adjustments processed through the financial statements"
urm what?
Answer below but i dont understand what questions 1 and 2 mean
0
Comments
-
Non-cash adjustments - think accruals, prepayments and depreciation.
An accrual does not actually affect the cash does it??
A prepayment does not affect the cash
Depreciation is a non-cash adjustment
Remember we account for accruals and prepayments as well as depreciation in the Income Statement yet they don't all have an effect on cash do they?
Any clearer?0 -
thank you i am a bit clearer now !
just a bit confused about the start of the statement "profit differs to cash" how does it?0 -
Profit is just a theoretical concept. You can't generally hold profit in your hand, but you can hold cash. You may have a £3000 profit on paper yet have no actual cash to show for it as the profit is tied up elsewhere.
Profit cannot be used to pay debts which is why it is important for entities to look at their cash flows to ensure they have the actual cash to pay their bills.0
