Accounting coursework Essay Example | Topics and Well Written Essays - 1250 words - 1

Accounting coursework - Essay Example In addition, it will explain how the companies have managed their working capital for the accounting periods. This will further analyse and explain the financing activities of the two companies. Task 4 will comment on the overall strategy being observed by the two companies based on their cash inflows and outflows based on analysis made on earlier tasks. A determination of which was able to manage its cash better will be made with reasons. The net profit generated from operations by the business may not be equal to the cash generated by operations by the same period because net profit includes non-cash items recognized as income and expenses but they do not necessarily involve cash. The reason for this is that revenues and expenses in the income statement are generally prepared under the accrual method of accounting (Kieso et, al, 2007) while Net Cash from operations, has taken this fact in consideration and this is the reason that certain items are added and subtracted to the net profit to arrive at the operating cash flow from operations. Thus there is need to add back to the net income, prepared under the accrual method, the non-cash deductions like amortizations and depreciations expenses. There is also need to deduct non-cash revenues like gains on sale of properties and investments and other adjustments. To illustrate, an example of the adjustments to the net income is shown in appendix A. Note that the net profit of $200,000 is lower than the net cash from operations of P246,700. An adjustment amounting $46,700 basically included added back depreciation, subtracted gains from sales and/or revaluation and change in working capital.