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Operating Activity for Cash Flows

Why may net cash flow from operating activities on the cash flow statement be different from the amount of net income reported on the income statement? Use a specific example to justify your answer.

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Question:
Why may net cash flow from operating activities on the cash flow statement be different from the amount of net income reported on the income statement? Use a specific example to justify your answer.
Answer:
In cash flow statement analysis of fund is made according to its meaning as cash. Cash flow analysis shows the effect on cash position of the business.
It explains reasons for inflows or outflows It helps management in making plans for future.
Operating activities include transitions which result in net cash earning from running the business. In other words it shows effect of transactions which create revenues and expenses. Operating activities section of cash flow statement starts with the net earning and non cash items like Depreciation, Intangible assets written off, provision for tax and dividend and increase or decrease in current assets or current liabilities are added or deducted from it to arrive at net cash provided by operating activities.
Net income calculated on accrual as presented by income statement is not correct representation of cash received from operating activities. Net income as reported by income statement and net ...

Solution Summary

The operating activities for cash flows is examined.

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