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Why do we add back non cash items to net profit while calculating cash flow from operating activities

Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 aliya bhat asked about 2 years ago

Hi I am Adhya. I am CA student. May I know, Why do we add back non cash items to net profit while calculating cash flow from operating activities

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Avatar 37a3bd7bc7328f0ead2c0f6f635dddf60615e676e6b4ddf964144012e529de45 RISHAV answered about 2 years ago

We add the non cash transactions to the net profit in calculating the cash flows from operating operations because the non cash transactions does not affect the volume of cash and when we have to find the level of cash, we ignore the non cash transactions. We add the non cash transactions to the net profit because earlier we have deducted these transactions to get the net profit. That's why we add them to net profit so that we have actual cash changes.

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