Differentiate between net cash flow and accounting profit.

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Answer-

Net cash flow is the net change in the amount of cash that a business is getting in profits or loses during a reporting period. It is generally calculated at the end of the last day in a reporting period. The way to calculate a business cash flow, we must add all the cash receipts and subtract any cash payments over a given period of time. It is not impacted by the accrual basis of accounting. The advantage of cash flows over accounting profits is that the cash flows take time value of money into consideration.

Accounting profit, or net income represents a company's total earnings. Accounting profit is the difference between company’s revenues, cost of goods sold (COGS) and expenses. The revenues are cash inflows and COGS and expenses are cash outflows. The accounting profit for a business can be calculated by taking the total revenues and making adjustments in accordance to their costs of doing business. These adjustments typically include metrics such as depreciation. interest and taxes. The non-operating items can increase or decrease accounting profit. The accounting profits can be manipulated.

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