Here I have one question. A positive net income figure on the income statement is ultimately...

Here I have one question.

A positive net income figure on the income statement is ultimately insignificant unless a company can translate its earnings into cash. Explain support for this statement.

Expert Solution

Even if there is a positive net income on the income statement those income statements are prepared as the principle of accrual accounting and accrual accounting will be advocating for matching principle of those income and expenditure in the same period for which the cash realisation had not been done.

In the income statement we are often recording sales and other figures when the transaction has been entered into, but the case has not been received yet,but in the cash flow statement we are only recording those statements which are leading to inflow and outflow of cash so there will be a discrepancy between cash flow statement and income statement and it is the reason because of which the profits are not translated into cash completely so there are various conceptual differences due to which we cannot treat the complete profit as cash and the incomes are not translating into cash as per the accrual concept

jeff jeffy answered 2 years ago

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How do I find the net income when dealing with a Traditional income statement

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Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 895.00 Cost of goods sold 755.00 Depreciation 45.00 Earnings before interest and taxes (EBIT) $ 95.00 Interest expense 26.00 Income before tax $ 69.00 Taxes 14.49 Net income $ 54.51 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 383 $ 340 Long-term assets 286 236 Total assets $ 669 $ 576 Liabilities and shareholders’ equity...

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Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales $ 888.00 Cost of goods sold 748.00 Depreciation 38.00 Earnings before interest and taxes (EBIT) $ 102.00 Interest expense 19.00 Income before tax $ 83.00 Taxes 17.43 Net income $ 65.57 BALANCE SHEET (Figures in $ millions) End of Year Start of Year Assets Current assets $ 376 $ 326 Long-term assets 272 229 Total assets $ 648 $ 555 Liabilities and shareholders’ equity...

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Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales...

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Here I have one question. A positive net income figure on the income statement is ultimately...

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THIS IS A SPANISH QUESTION (I have seen Spanish questions answered here before so I'd figure...

How do I find the net income when dealing with a Traditional income statement

Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales...

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Here are simplified financial statements for Watervan Corporation: INCOME STATEMENT (Figures in $ millions) Net sales...