why we add non cash items at the time of preparing of fund flow or cash flow
This query is : Open
Chandra prakash soni
(Querist)
28 October 2016
when we are preparing cash flow or fund flow why we add non cash items like depreciation , loss on sale of machine ,fictitious assets written off value
CA Amar Kumar
(Expert)
29 October 2016
Suppose your profit and loss account tells you that your profit for the year is Rs. 1,000.
Now, does this mean you'll have a 1,000 rupee note in your wallet? In P&L you charge depreciation which is a non cash expenditure which reduces your profit but not your cash balance. Imagine that you have provided as 100 depreciation in your P&L. Now, when you look in your wallet - you'll find 1,100 :)
That's why you make adjustments to Net profit to reach to actual cash flow.
Now, does this mean you'll have a 1,000 rupee note in your wallet? In P&L you charge depreciation which is a non cash expenditure which reduces your profit but not your cash balance. Imagine that you have provided as 100 depreciation in your P&L. Now, when you look in your wallet - you'll find 1,100 :)
That's why you make adjustments to Net profit to reach to actual cash flow.
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