Share
Explore BrainMass

Accounting: Cash flow.

Please help explain or simplify the following questions concerning cash flow analysis.

If there is a recent trend of negative cash flow, but the company's P&L statement is showing its running a profit, how can this be and how would you evaluate the state of the organization?

Explain why comprehending and managing cash flow is important for financial success.

Explain the benefits of cash-flow analysis and any problems that could arise if it is not conducted.

Solution Preview

CASH FLOW

If there is a recent trend of negative cash flow, but the company's P&L statement is showing its running a profit, how can this be and how would you evaluate the state of the organization?

A major part of accounting practice involves the use of the accrual concept. This concept allows expenses to be collated over different periods/years. The concept is applied to the Profit and Loss statement through apportionments and amortizations. In the profit and loss statement, expenses, which did not occur within the calendar year, would be allowed for in the current period. However, in the cash statement costs are only recognized when they occur in the current period.

For ...

Solution Summary

The problem deals with topics under accounting: cash flow analysis.

$2.19