Question

What are three reasons why Cash Flow from Operations and Net Income might differ?

Answer 1

The reasons for difference between Cash flow from operations and Net Income are:

1. Depreciation and Amortization is receognised as an expense in the calculation of net income but it does not lead to outflow of cash as it is a non cash expense and hence, does not reduce cash flows from operations

2.Expenses paid in advance or for prior periods will not be recognised in calculating net income for the period but it will be reduced from cash flows as it leads to outflow of cash

3.Gain/Loss on sale of fixed assets is recognized while calculating net income but not cash flows from operations as it is a part of investing activities.