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Profit is not cash flow:
Adequate cash is essential to keep business running. Inadequate cash increases the risk of not being able to meet current obligations as and when they arise which is dangerous to the company. There are many instances when businesses failed because of lack of cash flows even if they were profitable. Vice versa also hold good. Under accrual system of accounting net income (revenue less expenses) does not equate net positive cash flows. The difference is the timing of sale; expenses and profit do not coincide with their associated cash flows. Hence there is always a discrepancy between profit and net cash flow.A statement of Cash Flows is an essential component of Financial Statements. As the profit and loss account and the balance sheet are prepared on accrual basis, the profits disclosed by the profit and loss account do not indicate the liquidity of the firm. A firm may be highly profitable but may find itself with hardly any cash or working capital to continue the operating cycle. On the contrary, a loss making firm may have sufficient cash flows.
Q. Bento, Inc. had 500,000 shares of common stock outstanding before a stock split occurred, and 1,500,000 shares outstanding after the stock split. The stock split was a. 2-for-5.
How to Determine the financial reports of businesses In response to criticisms that financial reports of some businesses aren't clear enough to users, accounting rule makers ha
Various types of accounting changes can affect the financial statements of a business enterprise differently. Assume that the following list describes changes that have a material
In common terms the present value of a regular annuity may be shown as given below: PVNn = A/(1 + k) + A/(1 + k) 2 + ..................+ A/(1 + k) N = A (1/(1 + k) + 1/(
1. An organization owes £300,000 tax at 1.7.X4 and £450,000 at 30.6.X5. Its income statement for the year to 30.6.X5 includes a tax charge of £400,000. How much tax was actually pa
The discount rate used must normally reflect the weighted average cost of equity and debt taking into account the systematic risk of the investment. A company's weighted average co
what are the advantage and disadvantage to mr fish, mr Lobster of forming a partnership rather than a close corporation or a company?
Classifying expenses by nature Under this format, expenses are not classified by their nature i.e. referred to specifically according to their type and the major categories of ex
The Wanless Corporation provides Internet consulting services to a wide-range of customers. The company's fiscal year ends on December 31. For the year ended December 31, 2011, the
Piecemeal Realizations and Distributions Partnership dissolutions may take a substantial number of days even months) so it is unlikely that all cash generated will be simultane
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