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  An entity may report significant accounting losses over a number of successive years and still report...

  An entity may report significant accounting losses over a number of successive years and still report positive net cash flows from operating activities over the same period. How can this happen?

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Answer #1

The main reason for an entity having losses and still report positive net cash flows is non cash expenses like depreciation. Depreciation is an expense which reduces the net income from operating activities but does not involve cash payment. The same happens with all the non cash expenses.

Accrual accounting could be the another reason. Income received in advance and Expenses outstanding are the examples of the same. Hence, Income statement and Statement of Cash Flows shows different balances.

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