Question

Explain the following briefly with your own words. (max 200 words for each.)

Assume as if you are explaning the matter to one of your colleagues who did not take acc. & finance course.

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• 2) Why does the Cash and Banks balance not include the profits in most cases?
  

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Answer 1

Profits are a measure of accounting conventions followed by the firm and may not include the actual cash flows to the firm. Accounting profits work on accounting rules as specified by IFRS or US GAAP to arrive at the profit figures. On the other hand, cash and banks balance represents the actual liquid cash in the balance sheets. The cash is arrived by adjusting the accounting profit for the non cash items, working capital changes etc.