Question

Explain two reasons a company can experience a net loss and still report an increase in cash in the same period. Must explain how your example provides cash

Answer 1

there are lot of reasons a company can experience a net loss and still report an increase in cash in the same period spme of them are

1)Depreciation Expences

depreciation is a non cash expences.it reduces company"s Net income but it doesnt involves in payment of cash

exampe if the company purchased a equipment for $30,00,000 which is depreciated over the 10 years.

current year depreciation would be $10,00,000 (30,00,000/10)

entry for this would be depreciation ac debit and accumilated depreciation ac credit....no involvement of cash here

if the company shows a net loss of $ 200,000, after the non cash expence its cash wolud be increased by $800000

2)Accrual Accounting

a company must reports its expences when they are incurred even though invoice raised or not

suppose if the company has huge expence say $500,000 in last month of current financial year but the invoice is not due until the next financial year

in the current financial year the net income reduced by $500,000 but cash will be reduced in next financial year