Saturday, July 5, 2014

What is a calculation that reports net income and then adjusts the net income amount by adding and subtracting items that are necessary to yield net cash provided by operating activities?

What is a calculation that reports net income and then adjusts the net income amount by adding and subtracting items that are necessary to yield net cash provided by operating activities?
Net income is after deducting non-cash expenses such as depreciation and amortization. To determine net cash, these non-cash amounts must be added back:Net cash = Net income + depreciation + amortizationIn preparing financial statements, additional adjustments are necessary to account for changes in receivables, inventories, and payables that have occurred between the beginning and the end of the period in question.

For example, a net decrease in a current asset such as receivables should be added back to net income, or a net increase in receivables should be subtracted from net income, to get net cash. The opposite is true for changes in payables or other current liabilities - add back a net increase in payables, or subtract a net decrease in payables.

No comments:

Post a Comment