In comparing accounting net income and operating cash flow name two items you typically find in net income that are not found in operating cash flow.  Explain what each is and why it is excluded in operating cash flow.

Expert Answers

An illustration of the letter 'A' in a speech bubbles

First, it's important to understand how net income and operating cash flows are defined. Net Income is analogous to profit and is calculated by taking total sales and subtracting the cost of goods sold (COGS), selling and general administrative expenses (SG&A), operating expenses, depreciation, taxes, and other expenses. Net income is found on a firm's income statement (see example below).

Operating Cash Flow is equal to net income plus non-cash expenses minus any increases in net working capital. Operating cash flows are concerned primarily with cash inflows and outflows related to a firm's primary business activities (i.e. salaries, purchasing / selling inventory). The operating cash flows can be found on a firm's statement of cash flows.

Thus, two...

(The entire section contains 2 answers and 367 words.)

Unlock This Answer Now

Start your 48-hour free trial to unlock this answer and thousands more. Enjoy eNotes ad-free and cancel anytime.

Start your 48-Hour Free Trial
Images:
This image has been Flagged as inappropriate Click to unflag
Image (1 of 1)
Approved by eNotes Editorial Team