Cash Flow For Dummies
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Debtors, stock and prepaid expenses are operating assets used in the profit making process. Creditors and accrued expenses payable are operating liabilities used in the profit making process.

  • Operating asset increases and operating liability decreases are negative adjustments (decrease cash flow from operating activities)

  • Operating asset decreases and operating liability increases are positive adjustments (increase cash flow from operating activities)

  • Depreciation and amortisation expenses are positive adjustments (increase cash flow from operating activities)

Cardinal Rule: Make all cash flow adjustments to net income; don’t simply add back depreciation and amortisation, which could be seriously misleading to your auditors.

About This Article

This article is from the book:

About the book authors:

John A. Tracy, CPA, is professor of accounting, emeritus, at the University of Colorado in Boulder. Tage C. Tracy is principal, owner, and founder of TMK & Associates, an accounting, financial,and strategic business planning consulting firm.

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