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Why dont we add back expenses like salaries made due ,rent due ,or other adminstrative expenses to profit before tax figure in the operating activities section.wouldnt it be wrong to include them in profit if those expenses arent actually paid becausr we r dealing with cash profit nah?.
What’s “nah”
We do add back the accruals (because that’s the fancy name for what you are referring to)
Look again at the “Operating activities” section of the statement of cash flows and you’ll see a sub-heading “Changes in working capital”
There are three elements to this sub-heading … changes in inventory, changes in receivables and changes in payables
All three consider the amount by which each item has changed when we compare the figure at the end of this year with the equivalent figure at the end of last year
And within the payables figure we find ‘trade payables and accruals’
But don’t be tempted to include interest accrued, nor the estimated tax liability nor proposed dividends because these three are all dealt with as separate items
OK?
Nah?
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