BA 101 Lecture Notes - Lecture 13: Income Statement, Cash Flow Statement, Startup Company
30 May 2018
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Business 101 – Lecture 13 – Managing Cash Flow
Why Companies Go Bankrupt
• Companies don’t o bankrupt because they don’t make a profit, they go bankrupt because
they run out of cash to pay their bills
• Example:
o New startup companies may not make a profit for the first few years, yet they stay
in business
Net Income (Profit) Not the Same as Cash Income
• Three differences:
o Depreciation
o Accounts Receivable
o Accounts Payable
• A cash flow is either a source of cash or a use of cash. If it is a source of cash, the
company has the money and can use it
• If it is a use of cash, the company no longer has the money and can’t do something else
with it
• The cash flow statement is also called the sources and uses statement
Depreciation
• A non-cash expense, the money is not really paid out
• An accounting fiction
• Depreciation expense does not reduce cash
A/P and A/R
• The amounts are included in the income statement
• The actual cash flows may happen outside of the income statement time frame
• Need to adjust cash flows for timing of A/R and A/P
Cash Flow Statement
• Shows movement of cash in and out of an organization over a given period
• Shows how much cash is available for use during a given period
• Reconciles net profit back to cash
Document Summary
Business 101 lecture 13 managing cash flow. Net income (profit) not the same as cash income: three differences, depreciation, accounts receivable, accounts payable, a cash flow is either a source of cash or a use of cash. If it is a source of cash, the company has the money and can use it. If it is a use of cash, the company no longer has the money and can"t do something else with it: the cash flow statement is also called the sources and uses statement. Depreciation: a non-cash expense, the money is not really paid out, an accounting fiction, depreciation expense does not reduce cash. A/p and a/r: the amounts are included in the income statement, the actual cash flows may happen outside of the income statement time frame, need to adjust cash flows for timing of a/r and a/p.
