Why does accounting income differ from cash flow?

Question

Can cash flow from operations be positive, if net income is negative?

Answer 1

Yes. Accounting income uses the accrual method which tries to "match" expenses to revenue. For example, if you purchase a factory, its expense will be spread over 30 years, despite the cash flow all going out today. Thus there will be future expenses but no future cash outflows. Another example involves large write-offs, which involve no immediate cash out flow but can be extremely large resulting in negative accounting income, but positive operating cash flow. It is not unusual to find companies with positive cash flow from operations and negative accounting income.

Answer 2

I'm not sure what you're asking here...

Accounting income refers to a type of income which due to its nature has to be positive, cash flow is the total of money moving in AND out. All income is always positive, if it is negative then that is either an expense or a loss, and cash flow refers to both the positive and the negative.

So cash flow from operations could be positive, but if you're not getting paid then you have zero gross income, and if you're losing money you have zero net income, but regardless of cash flow there is no such thing as negative net income, that can not exist, it is a contradiction in terms.

If you're losing money, you may have zero income.
And anything beyond that is either a loss or an expense.

Answer 3

1. Accounting Income = profits you have "made" over a period of time = revenue - expenses incurred during this period 2. Net Cash Flow = Cash you have + all collections, including deposit collected - all payments, including any prepayment or deposits made for future expenses Think about it, there are profits that you have made but have yet to collect and there could be some pre-payments you have made for expenses that are not yet recognised as expenses in the P/L statement now (they will be recognised when they are being used in future periods). Hope this helps.

Answer 4

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