I bow at the feet of the enlighted and recognize that I’m an idiot.
In R21
When reconciling from Net Income to Cash Flow from Operations, why the devil do they use an increase/decrease from interest receivable instead of backing out each periods interest received?
I realize the numbers work in the end, but can’t figure out the rationale behind treating the interest receivable on an increase/decrease basis and not as the period’s absolute cash flow.
I’m sure I’m blindly missing something, but I’d appreciate any help in understanding the concept.
? its balance sheet adjustment similar to every other working capital adjustments in CFO. its not interest income/expense on income statement. am i missing something?
Thanks for help, but to my knowledge the lease receivable is on the BS as PV of future lease payments but any interest income is revenue on Inc Stmt Does this clarify at all or am I still in left field?
I am a bit confused by your question but when you’re going from net income to CFO you’re only trying to ‘capture’ the cash flow that wasn’t already part of NI. Eg say your interest expense was $50 but you only paid $40 of it. Net income would show the effects of the full $50 expense but you still have $10 in your pocket so your cash flow is in better shape. Likewise say someone owed you $100 from a lease receivable but only paid $75. you will book the whole $100 as revenue but seeing as you didn’t get $25 of it, your cash flow is worse off. If you already had a $150 lease receivable that you still haven’t managed to collect from prior years, this shouldn’t go into cash flow because you don’t have the cash for it yet. It has no effect on net income (assuming the revenue was booked in prior years) or cash flow. So that’s why you add or subtract the change, rather than the overall level. Not sure if that’s what you were asking, but hope it helps.