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If a company reports positive net income for the year on the Income Statement, can it...

If a company reports positive net income for the year on the Income Statement, can it also show a net cash outflow from operating activities on the Statement of Cash Flows? Explain.

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Answer #1

Yes It can be possible For a company having positive net income with a net cash outflow from operating activities on the statement of cashflows as we all know income statement works on accrual basis whereas cashflow means actual cash inflow or outflow from the company.

Lets take an example

A company has Net income of $ 75000 but on the other side the companies creditors changes from $200000 to $100000 It actually means that the companies had paid creditors $100000 Cash so while Preparing Operating Activity we show negative amount of $100000 as decease in creditors so which lead to negative cashflow that is ( $75000-$100000=-$25000) which means cashoutflow from the company

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