Why do we take the difference between opening and closing balance of p/l a/c in cash flow statement?
Hi Riya,
The difference between the opening and the closing balances of Statement of Profit and Loss shows the profit earned during the year.
For example,
Opening Balance: Rs 1,00,000
Closing Balance: Rs 1,50,000
Now, the increase in balance from Rs 1,00,000 to Rs 1,50,000 indicates that profit of Rs 50,000 is earned by the company during the year.
And to this profit figure, adjustments are made for non-cash expenses (added), non-operating expenses (added), non-operating incomes (deducted) and so and so forth, so as to determine actual cash flows from business operations.
Hope, you understood this now.
The difference between the opening and the closing balances of Statement of Profit and Loss shows the profit earned during the year.
For example,
Opening Balance: Rs 1,00,000
Closing Balance: Rs 1,50,000
Now, the increase in balance from Rs 1,00,000 to Rs 1,50,000 indicates that profit of Rs 50,000 is earned by the company during the year.
And to this profit figure, adjustments are made for non-cash expenses (added), non-operating expenses (added), non-operating incomes (deducted) and so and so forth, so as to determine actual cash flows from business operations.
Hope, you understood this now.