Profits with No Cash
Profits With no Cash
University
Dr.
Sep 10, 2014
Profits With no Cash
It is regularly a common thing in business to make profits without having any cash due to several aspects of business. This is happening by the non-cash flow adjustments that are recorded as transactions while no cash flows are involved. It is possible to make business transactions without cash involvement.
In credit transactions, cash is not usually transacted but the transactions are usually recorded therefore if the credit transactions are not paid at the end of the financial period then the cash will not be available therefore the total income from the transactions may not be available in cash during the end of the financial period. The transactions in the financial statements are reflecting the credit transaction in both the debtor’s account and the cash account. The amount of money with the debtors might not be at hand, but an income assumed to have been earned when the transaction are already made and not when the money is received. This therefore may result in profits reflected in the income statement while no cash is available.
In depreciation transactions, they are usually reflected in the income statements as the expenses but no amount of cash is involved to account for such depreciation. This is also contributes to the chances of making profits when cash is not available currently at hand because of changes in cash flows.
While the provisions for depreciation are also recorded on the financial statements, they does not involve any cash movement therefore contributes to the reasons of making profits while no cash is available. These provisions are common in business transactions where bad debts are involved therefore may result in profit in records while no cash is available to account for such profits.
Changes in inventory also affect inventory in some ways. For example, if the business buys more stocks, it means that that its cash decreases so it may account
University
Dr.
Sep 10, 2014
Profits With no Cash
It is regularly a common thing in business to make profits without having any cash due to several aspects of business. This is happening by the non-cash flow adjustments that are recorded as transactions while no cash flows are involved. It is possible to make business transactions without cash involvement.
In credit transactions, cash is not usually transacted but the transactions are usually recorded therefore if the credit transactions are not paid at the end of the financial period then the cash will not be available therefore the total income from the transactions may not be available in cash during the end of the financial period. The transactions in the financial statements are reflecting the credit transaction in both the debtor’s account and the cash account. The amount of money with the debtors might not be at hand, but an income assumed to have been earned when the transaction are already made and not when the money is received. This therefore may result in profits reflected in the income statement while no cash is available.
In depreciation transactions, they are usually reflected in the income statements as the expenses but no amount of cash is involved to account for such depreciation. This is also contributes to the chances of making profits when cash is not available currently at hand because of changes in cash flows.
While the provisions for depreciation are also recorded on the financial statements, they does not involve any cash movement therefore contributes to the reasons of making profits while no cash is available. These provisions are common in business transactions where bad debts are involved therefore may result in profit in records while no cash is available to account for such profits.
Changes in inventory also affect inventory in some ways. For example, if the business buys more stocks, it means that that its cash decreases so it may account
References: Epstein, L. (2012). The business owner 's guide to reading and understanding financial statements: How to budget, forecast, and monitor cash flow for better decision making. Hoboken, NJ: Wiley. Gorton, B. (2011). Boosting sales: Increasing profits...without breaking the bank. London: Bloomsbury Publishing.