![]() ![]() We have already shown it as non-cash expense in the debited side of profit and loss accountīy adding depreciation in net income, we cancel already deducted depreciation from total income. So, it is necessary to add depreciation to net income to determine the net cash flow from operation.Ģ. ![]() ![]() After comparing both, we calculate the net cash flow from operation. We show all the expenses which we pay in the form of cash in Cash Flow from Operation Statement. We show all the incomes which we receive in the form of cash in Cash Flow from Operation Statement. It is still net income but in the form of cash. But Cash flow from operation is different from net income. For showing our net profit correctly, we show it in the debit side of profit and loss account. We reduce the value of asset in the balance sheet. Depreciation on fixed asset is a non-cash expense or loss. ![]() When we charge the depreciation, we do not pay the outside part for reducing our current liability. Now, I explain above two reasons one by one. Depreciation is added to net income to determine cash flow from operations because 1) Depreciation is not cash expense 2 ) We have already shown it as non-cash expense in the debited side of profit and loss account. ![]()
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