PBIT or PBT or Net Profit in Cash Flow St.

[Shunmas]

Hello!

I have seen variations by different accountants on using either profit before interest and taxes OR profit before tax OR net profit in the start of cash flow statement.

What is the reason for thats?

Thanks

 

[mr. mischief]

Well you can start whever you want, so long as you're careful to adjust out the non-cash movements.

On all of the options you mention, you must adjust for the fact that sales - however they are calculated - will rarely equal cash receipts in all but the simplest businesses. Likewise the expense items in the profit and loss.

If you started with Profit before interest and tax, you must factor in the total interest and tax paid to get to net cash flow. If with PBT, factor in the total tax paid and adjust the interest in the P&L for non-cash accounting used in the P&L. if with pforit after tax, adjust for the non-cash elements of both tax charge and interest charge.

The main thing in getting any cash flow right is to ignore all of the above and ask:

Does this figure equal a physical cash movement?

If it does, it's in the cash flow! If it does not, you need to adjust it.