CashflowNotes - Page1of2 More about Operating Cashflows We...

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Page  1  of  2 More about Operating Cashflows We start with accrual Net Income—but wait, there’s something wrong with that number from a cashflow perspective: It includes many “pure accruals” which involve no cash payouts or receipts. The prime culprit is Depreciation Expense. That arises as a result of the gradual use-up of a long- lived resource. But remember that we may have paid for that resource—a truck, a building, a patent (in which case we say “amortization,” not depreciation) years and years ago. Depreciation Expense involves no current cash payouts. Yet it’s often a huge number! So our first step on the Yellow Brick Road from Net Income to Cashflow from Operations: Start with Net Income and add back Depreciation and Amortization. Net Income xxx xxx Now we come to another issue: Current Assets and Current Liabilities. If you look at any Cashflow Statement, you’ll see things like this: Net Income xxx
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This note was uploaded on 06/17/2011 for the course ACC 101 taught by Professor Paul during the Spring '11 term at Aligarh Muslim University.

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CashflowNotes - Page1of2 More about Operating Cashflows We...

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