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Sir,in the third lecture of CFS Statements,under the indirect method,why dont you add back irrecoverable debts? Ultimately,its a non cash item and is included in expenses,which reduces the actual cash profits. Pls explain the logic.
It does affect the cash because if a debt is irrecoverable then it means that we are not receiving the cash we would otherwise have received.
We only add back to profit items which do not affect cash (which is what you were saying in your first post!!) – that is why we add back depreciation.
So,under Indirect method we give no regard to an irrecoverable debt? like it has no treatment in cash flow
That is correct – we make no adjustment to the profit for irrecoverable debts. (They have been removed from the receivables because we have not received the cash.)
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