Inventory and cost
The inventory is usually the most active of a company that sells products. If the inventory account at the end of the period than at the beginning of the reporting period is larger, the amount the company actually paid in cash for this inventory more than what the company registered as cost of good sold fresh. When that happens, takes inventory of the net income increased to determine the cash flow for profit by the auditor.
the fresh active prepaid account works in much the same way as the change in inventory and accounts receivable accounts. However, changes in the charges paid in advance, are generally much smaller than the changes in the other two active accounts.
The opening balance of prepaid expenses charged to expenses in the current year, but the money is actually paid last year. This period, the company pay cash for the next period, charges prepaid, which affects cash flow this period, but it has no impact on net income before the next period. Simple, right?
As a company grows, it has prepaid expenses for such things as insurance premiums to be paid in advance of fire and inventory of office supplies increase insurance coverage. Increase in accounts receivable, inventory and prepaid expenses are the cost of the cash that a firm must pay for growth. Rarely is a company which can increase its turnover without increase of these assets.
Behind the lagging effect of the cash flow is the price of the growth of the business. Managers and investors must understand that the increase in sales without an increase in accounts receivable is not a realistic scenario for growth. In the business world, you generally enjoys growth of revenue at no additional cost.
0 comments:
Post a Comment