If the dollar amount of cash collection exceeds the dollar amount of accrual revenue that dollar amount must be added back to net income. If revenue exceeds cash flows that specified amount must be deducted in the operating section of the cash flow statement. Am i correct? Am i missing anything? Any feedback and or additions would be greatly appreciated. Thanks
That’s a rather simplified explanation but correct. I usually think of it as: Net Income +/- changes in current assets and liabilities (cash, inventory, A/P, etc.) +/- non-cash operating items (depreciation, accrued expenses/revenues. etc.) +/- non-operating items (gain/losses on debt/investments, sale of PP&E, etc.) = CFO
paul_ledin Wrote: ------------------------------------------------------- > That’s a rather simplified explanation but > correct. I usually think of it as: > > Net Income > +/- changes in current assets and liabilities > (cash, inventory, A/P, etc.) > +/- non-cash operating items (depreciation, > accrued expenses/revenues. etc.) > +/- non-operating items (gain/losses on > debt/investments, sale of PP&E, etc.) > > = CFO PERFECT
Think of it as NI + Depreciation, Amortization (Non Cash charges - so add back, also have been removed in NI) + Loss on Sale of Asset (Already removed in NI, so add it back) - Gain on Sale of Asset (Added to NI already, so remove it now) Then Look at Current Assets, and Current Liabilities. Current Assets – add decrease in Asset between periods. (You gained some cash because you sold the asset) remove increase in asset between periods. (You invested in the asset, so reduce cash) Asset moves in opposite direction to the direction of change. CUrrent liabs add increase in liability remove decrease in liability. Liability moves in the SAME direction to the direction of change. ================== CFO =================== Of course in all of these above – know your way around identifying Purchase and Sale value as well as Gain/Loss for Assets given the PP&E Accounts, the Accumulated Depreciation Accounts and the Net PPE account. Remember: Net PPE End = Net PPE Beg - Depreciation Expense in period (Income statement)+ Purchase - Sales Hope this helps CP
This helped me tremendously guys. Thanks
paul_ledin Wrote: ------------------------------------------------------- > That’s a rather simplified explanation but > correct. I usually think of it as: > > Net Income > +/- changes in current assets and liabilities > (cash, inventory, A/P, etc.) > +/- non-cash operating items (depreciation, > accrued expenses/revenues. etc.) > +/- non-operating items (gain/losses on > debt/investments, sale of PP&E, etc.) > > = CFO The change in cash is not in CFO; it is the bottom line of the cash flow statement, i.e., the result of CFO+CFI+CFF+Exchange Rate Effect.
as frenchriviera has said above – CFO + CFF + CFI should be equal to Delta Cash (change in Cash). When you are considering the Current Assets - do not include the CASH component there. CP
cpk123 Wrote: ------------------------------------------------------- > as frenchriviera has said above – CFO + CFF + CFI > should be equal to Delta Cash (change in Cash). > > When you are considering the Current Assets - do > not include the CASH component there. > > CP That’s an excellent correction, I was sloppy and just throwing in whatever common current asset accounts usually come to mind.