COMMERCE 1AA3 Chapter Notes - Chapter 12: Cash Flow Statement, Cash Flow, Current Asset
6 Dec 2016
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Explanations of adjustments to net income to make it equal to net cash flow from. Operating activities under the indirect method of preparation. This means that it is an expense that makes net income go down but not cash. Thus we need to add back depreciation expense to net income to make it match net cash flow of sh. Rent expense made net income go down but not cash, so add decrease in prepaid rent of 10k which is a decrease in current asset to net income to make it match net cash flow of sh. The above transaction only affects balance sheet elements and not net income. Thus an increase in prepaid insurance which is a current asset should be subtracted from net income to make it match net cash flow of minus k from the transaction. The above entry deals with balance sheet items. Thus cash went down by k but no effect on ni.
