Question

Give one reason that can cause a firm to report negative cash flow in the same period that it reports a positive net income?

Give one reason that can cause a firm to report positive cash flow in the same period that it reports a negative net income?

Finally, give an example of how cash flow is managed in your organization or an example of how a firm can increase cash flow when sales volume is decreasing.

Answer 1

One Reason is the revenue is recorded on accrual basis and not on cash basis hence it will show profit. However actual cash receipt might not have happened.

One Reason is the depreciation or other non cash expense might have resulted in negative profit but since depreciation is a non cash expense there might be positive cash flow.

By reducing the account receivable days by negotiating with the customers can increase cash flow even when sales volume is decreasing.

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