Question

4. Operating Cash Flow [L02] In comparing accounting net income and operating cash flow, name two items you typically find in net income that are not in operating cash flow. Explain what each is and why it is excluded in operating cash flow.

Answer 1

Answer:

1. Depreciation or Amortization of Assets

2.Profit or Loss on sale of Assets

Explanation:

Operating Cash Flow is very different to Net Income. The earlier represent cash movement and the latter represent profit movement.Cash and profit literally are different.

So in the profit calculation you would find some non-cash items that include estimate of depreciation expense or amortization cost of intangible assets or a profit or loss on sale of a PPE item.

Whereas in Operating Cash Flow determination only cash items are considered and all non-cash items are removed from profit of the year to reach an amount of Operating Cash Flow.