Cash Flows in Business Organisations - Coursework Example

On the other hand, net cash flow can be defined as the difference between the cash that is brought in and that goes out of a company. First, to understand the underlying factor causing the difference in these two major accounting items, it is imperative to be known that the determination of a company’s net profit for the financial period depends on some criteria as provided by the GAAP (Eisen 2007, pp. 101-110). Unlike net profit, cash flow determination is not affected by any criteria. Second, the difference is brought about by the fact that some expenditure considered as non-cash such as the depreciation costs are deducted from the revenue in order to obtain the net income.

On the other hand, these non-cash costs are added back to obtain the net cash flow. Third, the difference may be caused by the rules regulating the recognition of revenues and expenditures, which do not apply to a cash flow statement but to the profit and loss account. Consider a company with a net income of $ 1,117,500. To obtain the company’s cash flow, some costs such as the amortization ($ 101,100) are added back to the net income to obtain the net cash flow. Therefore, $ 1,117,500 + 101,100 + (or less other items) will result in a higher value of net cash flow as compared to the net income (Gilbertson & Lehman 2009, pp. 428). As provide in the international accounting standards 7, the indirect method of cash flow presentation involves beginning with the net income, which is then adjusted to obtain the net cash flow.

On the other hand, the direct method specifically shows the cash inflows that make up the operating activities as shown in appendix 1a and 1b (Jury 2012, pp. 228-230). Operating activities: The extracts of operating activities of the two companies are available under appendix 2. In the year 2011 and 2012, the following are the cash flow analysis: Viacom has net earnings of $ 2,173,000 and