Hi Guys, please could you confirm… When calculting the cash flow statement, one ignores depriciation as there was no actual cash outflow, however what about the amortization of a bonds premium or discount? is this a cash outflow/inflow and recored on the CFS? because the prem or discount was included in the interset expense on income statement? Thanks
cash interest paid is included in CFS … amortization of premium or discount is ignored just like depreciation…
Good Deal Co. Statement of Cash Flows For the Seven Months Ended July 31, 2008 Operating Activities Net Income $ 100 Add back: Depreciation Expense 20 ******* Add back: Loss on Sale of Equipment 180 Increase in Inventory (200) Increase in Supplies (150) Cash Provided (Used) in Operating Activities (50) I thought i understood it, but now why in the above example is depreciation expense added back, i thought i was ignored? : /
Depreciation expense is ignored in the sense that it is not taken as expense when we are working with cash basis accounting as we do in CFS… In calculating Net Income, depreciation has been deducted. But as it is ignored as an expense so in CFS we add it back to Net Icnome, same is the same with Loss of sale of equipment, it is a loss in the books but acutal cash has already been paid when the equipment was purchased…
Ofcourse!! thanks MA. It’s been a long day, recon the brain had shut down. It’s all come back now, was getting a little worried. Cheers