Cash flow statement, balance sheet and income statement

Hi,

Depreciation as reported in cash flow should be traced directly to depreciation reported in income statement. There can never be any difference in depreciation reported in cash flow and income statement. But it can happen that depreciation on fixed assets and amortisation of intangibles are reported seperately in one statement (cash flow or income statement) and combined in other statement (cash flow or income statement), in which case you need to make sure both depreciation and amortisation are appropriately added back in cash flow statement whether shown as depreciation and amortisation taken as combined or both shown seperately.

As far as change in inventory, accounts payable and accounts receivable is concerned, non-cash items are also taken into account while arriving at change in these items of working capital.

Main non-cash item for consideration is the impact of foreing exchange on inventories, accounts payable and accounts receibable, since ithese items are translated at balance sheet sheet date but impact of translation does not represent change in working capital for cash flow purposes which is considered to be cash when we are adding the change in working capital items to cash generated from operations before working capital changes. Hence foreign currency translation impact is excluded while computing the difference between opening and closing balance.

Apart from foreing exchange impact, there can be impact of inventory, accounts payable and accounts receivable of subsidiaries purchased or sold during the year, which need to be adjusted to arrive at change in the respective item of working capital.

Therefore, difference between opening and closing balances of inventory etc may not necessarily represent change in working capital which is reported in cash flow statement.

Hope this clarifies.