Net Profit Flashcards
Explain, giving two examples, how the business’s Net Profit can be higher than its Net Cash Flow from Operating Activities.
Net profit is based on accrual concepts and only revenue earned and expenses incurred are considerd. The Cash Flow Statement only includeds cash in and cash out and does not consider the concept of profit under the accrual accounting
The net operating cash inflows include cash outflows such a prepaid rent, which in this case is greater than the advertising expese and therefore results in a high net profit than cash flows from the operating activities
Eg.
Payments to accounts payables are greater than cost of sales
GST settlemnts made early on in the year will not effect profit but decreaseses the net cash flows from operating activities
