Cash Flow Statement

Question 1

How does Net Cash flow from operations can be higher than the Net profit of the same period pt 1

Answer 1

1.(Define NP and CFS)
Net profit is based on accrual concepts and only revenue earned and expenses incurred are
considered. The Cash Flow statement only includes cash in and cash out and does not consider
the concept of profit under accrual accounting.

Question 2

How does Net Cash flow from operations can be higher than the Net profit of the same period pt 2

Answer 2

2. (The reasons)
   An income statement also includes non-cash items such as inventory loss, which is not a cash flow and is therefore not included in the calculation of net cash from operating activities.

Question 3

How does Net Cash flow from operations can be higher than the Net profit of the same period pt 3

Answer 3

3. (effects on IS & CFS)
   This could result in cash from operating activities being greater than the net profit earned for the period. If there are significant accruals then expenses incurred
   may be more than the cash paid for expenses and cash from operations could then exceed net
   profit. Also, the receipts from accounts receivable could also be greater than the current period’s
   credit sales as collections could include receipts from the previous period’s sales. This too could cause net cash from operating activities to be greater than the net profit reported for the period.

Question 4

State two possible reasons for this trend in Budgeted CFC