ABC Company is engaged in the manufacturing of electronic equipment. The Company has reported net loss for the year 2013 but its Cash Flow Statement is showing a positive net cash flow. Being a student of Business Finance, you are required to discuss briefly the reasons behind the difference between net result of Income Statement and Cash Flow Statement.
Solution: The cash flow statement is similar to the income statement in that it records a company’s performance over a specified period of time. The difference between the two is that the income statement also takes into account some non-cash accounting items such as depreciation. The cash flow statement strips away all of this and shows exactly how much actual money the company has generated. Cash flow statements show how companies have performed in managing inflows and outflows of cash. It provides a sharper picture of a company’s ability to pay creditors, and finance growth.
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