Question

1. Define cash flow and what are the important parameters that go into it? 2. Net cash flow before income tax (NCFBIT) and taxable income are the same? (True / False) 3. Taxable income is implemented in your net cash flow as of generating gross revenue (True or false) and why?

Answer 1

1. Cash flow is the amount of  actual cash inflow or outflow. It can be calculated in 2 ways . First one is calculate cash flow as per actual cash receipts and actual cash payments. Second method is adjust for Net income as per profit and loss account since it is based on accrual concept . It is adjusted for Depreciation, amortization, gains and losses on sale of assets and then working capital movements to see cash inflows and cash flows. For example increase in accounts receivable will decrease cash inflow

2.False

Net cash flow before income tax (depreciation and amortization is adjusted )

Whereas taxable income is arrived after considering depreciation and amortization.

3 True

Taxable Income is taken as base for generating gross revenue . Taxable Income is taken from profit and loss account. From this base adjustments are made for non cash items like depreciation, amortization, etc and then working capital movement is adjusted.