13.2: Net and Gross Cash Flows

Last updated
Save as PDF

Page ID: 45987

$ \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } $ $ \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} $$\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$ $\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$$\newcommand{\AA}{\unicode[.8,0]{x212B}}$

Learning Outcomes

Differentiate between net and gross cash flows

Gross cash flows don’t exist in the operating portion of the cash flow statement. GAAP (generally accepted accounting principles) and IFRS (international financial reporting standards) for foreign companies, require us to disclose the gross cash flows for the investing and financing sections of the cash flow statement.

Gross cash flows essentially include the purchase price in cash of a new piece of property or equipment, and the cash gain of the sale of a piece of property or equipment.

So if a company purchased $25,000 of new equipment and sold $10,000 of equipment, the net cash flow would be $15,000. But in the investing and financing sections, we need to keep those separate. It is still important to note the difference in balance netted, then backing it out to the gross calculation!

Here is an outline of how noncash balance sheet accounts affect the investing and financing sections of your cash flow statement:

	If the account balance increases	If the account balance decreases
Non-Current Assets (Investing Activities)
Property, Plant, and Equipment (P,P,&E)	Subtract	Add
Long-term investments	Subtract	Add
Loans to others	Subtract	Add

Liabilities and Equity (Financing Activities)
Bonds payable	Add	Subtract
Common stock (our own company)	Add	Subtract
Retained earnings	*	*

*Retained earnings will need more analysis

So you will notice, this chart looks at the overall change in the balance, but to calculate the gross cash flow by looking at the detail in all of the each of the accounts to fill out the cash flow analysis to meet the requirements of GAAP and IFRS reporting requirements.

Practice Questions

https://assessments.lumenlearning.co...sessments/9685

Net and Gross Cash Flows. Authored by: Freedom Learning Group. Provided by: Lumen Learning. License: CC BY: Attribution