Cash Flow Statement:
Current Year Profit & Retained Earnings

by Mary Reimoi
(Papua New Guinea)

Q: Where do we enter current year profit and retained earnings in the cash flow statement?


A:
Actually neither of these are included in the cash flow statement .

Current year profit is the final figure in the
income statement .

Income Statement

This net profit figure then goes into the statement of changes in equity and is added to retained earnings.

Retained earnings is simply accumulated profits. It is the total of profits that have been accumulated over the years for the business. In the image above the retained earnings is the balance at the end of the year.

Retained earnings is shown on the
balance sheet under the owner's equity section.

Why is profit and retained earnings not included in the cash flow statement? Simple. Both of these profit items
do not represent cash .

Remember that profit is incomes minus expenses. And both incomes and expenses can occur with or without a movement of cash. For example, one has the telephone bill as an expense but you don't pay it before the end of the year. This is known as an
accrual item , which basically means something occurring on credit.

The cash flow statement only shows cash items. So profits are not shown here, only flows of cash coming in and cash going out.

Hope that makes sense!

Best,

Click here to post comments

Return to Ask a Question About This Lesson!.






Enjoying this Website?
Help Support it with a Donation

OR...





Advertise on ventoup.ru

privacy policy




Related pages


bank reconsdebit memo accounting entrybalancing equations easy worksheetdebit definition in accountingwhat is direct labour and indirect labourhow to treat provision for doubtful debtsimportance of ledger in accountingdifference between direct and indirect cash flowhow to prepare an income statement in excelmeaning of accrualsunearned rent debit or creditfifo stock salesaccounting booksfifo inventory managementfifo lifo inventoryperpetual inventory formaccrued expense vs accounts payablehow to prepare income statement from trial balancecarriage inwardaccumulated retained earningsaccounting equation exampleformat of a petty cash bookaccounting contra accounthow to calculate costs of goods manufacturedaccounting balance sheet template excelexamples of fifo and lifohow to calculate the markup percentagecalculating value added taxjournal entry for advance salary paidjournal entry for accrued interestaccrued payable journal entryoffice supplies expensebills payable and bills receivablecash flow from operating activities formulahow to calculate closing stock without gross profitcalculating markup formulaethiopian coc examaccounting synonymbasic maths test for interviewformat of a cash budgetreinsurance accounting journal entriescash book ledger formatfifo inventory methodaccounting credits and debitsoperating investing and financing activities examplesaccounting tutorsdouble entry bookkeeping excel templateexample of business transaction in accountingdebtors control account definitiondefinition of marked pricestatement of changes in equity templatedebit credit journal entrieswhat is an accounting equationowners equity definecosting method for manufacturinghow to figure out depreciation expensecomparative income statement templatepurchase ledgehow to compute prime costhow to prepare general ledgerhow does depreciation affect cash flowmulti step income statement templatecreditor definition in accountingaccounting technician practice testaccounting ledgers templatesdebit latin meaningpetty cash formatwhat is trial balance why is it prepareddebit meaning in accountingdirect materials cost formularecording transactions in t accountsindirect method cash flow templatecash cheque definitionbasics of bookkeeping pdfavco advantages and disadvantages