Browse MBAs SECTION 1: Financial Accounting & Reporting

The Accrual vs. Cash Translator

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The Accrual vs. Cash Translator

Help me reconcile the difference between this company's reported profit
and its actual cash.

Profit (accrual basis): [AMOUNT]
What I know about the period: [CHANGES IN RECEIVABLES, PAYABLES,
INVENTORY, DEPRECIATION, ANY LARGE NON-CASH ITEMS]

Explain, step by step:
1. Why accrual profit and cash flow diverge in general
2. How each item above pushes cash above or below reported profit
3. A rough bridge from net income to operating cash flow using what I
   gave you
4. Which of these gaps is normal and which would make me question
   earnings quality

Teach me the logic as you go so I can do this myself next time.

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