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.

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i dont know
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That helps us in knowing the profit earned during the year. And since we are preparing the cash flow statement of a particular year, we take into consideration the profit which has been earned during that year.
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But opening and closing reveals profit of two different years so why do we deduct profit of past year?
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