why we add non cash items at the time of preparing of fund flow or cash flow

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Chandra prakash soni (Querist)
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28 October 2016 when we are preparing cash flow or fund flow why we add non cash items like depreciation , loss on sale of machine ,fictitious assets written off value

CA Amar Kumar

CA Amar Kumar (Expert)
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29 October 2016 Suppose your profit and loss account tells you that your profit for the year is Rs. 1,000.
Now, does this mean you'll have a 1,000 rupee note in your wallet? In P&L you charge depreciation which is a non cash expenditure which reduces your profit but not your cash balance. Imagine that you have provided as 100 depreciation in your P&L. Now, when you look in your wallet - you'll find 1,100 :)

That's why you make adjustments to Net profit to reach to actual cash flow.

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