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

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