How a Company Can Have a Negative Net Income and a Positive Cash Flow?

The situation seems to be a bit counter-intuitive but it is very common and is not that difficult to comprehend. Breaking down the factors at play for examining more closely will help you to understand better how it is possible for a company to have appositive cash flow but a negative net income.

When people talk about net income, they talk about the number, which has been computed by their accountants and reported on the income statement of the company. In a simple way, it can be said that the annual net income of a company is its revenue minus all the applicable expenditures in the given year. When the company’s expenses become greater than the revenue that it has earned, it incurs a loss for that given year, which needs to be reported on the income statement.

Let us have a closer look at the various kinds of expenses a firm can incur. The income statement may include expenditures like depreciation, usage of prepaid expenses, losses recorded on the paper for bad debt expenses. These kinds of expenditures are not the type of expenses the firm actually pays cash for.

Now let us say that a company in Auckland had a net loss of $200,000 for a given year. It recorded about $200,000 in depreciation for that year and used up about $100,000 of the prepaid expenses and wrote $150,000 of the bad debts it knew it will never be able to collect. The cash flow for that year is then $450,000, which is more than the net income that’s reported on the income statement by their tax accountant in Auckland. This means the cash flow is positive but it is not going to pay any income tax for that year because it has recorded a net loss. However, in reality the company has more cash on hand than it had at the beginning of the year.

Before investing in bonds or stock of a company, investors must be aware of the cash flow and the net income of the entity. What good is it going to be for a shareholder if the company has got a cash flow that’s positive but is hit with net losses repeatedly?

How to Utilize the Savings from the Tax Refunds in NZ

The New Zealand Inland Revenue Department (IRD) handles the all taxation affairs paid by individuals. A tax payer may pay more than the amount of tax that he has to pay from his income in advance. This phenomenon will make that individual liable to be eligible to get tax refunds. Many people are interested in getting their tax refund.

The calculation of refund is done by IRD on the basis of personal circumstances. On an average an individual gets about $500 tax refunds in NZ from the amount he pays. Some of the tax payers utilize this amount for paying extra payments like going for a vacation, doing Christmas shopping etc. But there are some other ways to save these extra bucks in a more fruitful way. Below I have discussed some great ways to spend your tax refund in New Zealand.

Paying off the high interest debt:

Look to pay off all the debts that you have pending.  You might find that the refund amount is not sufficient to pay off the entire debt amount. Try to use it for the account which is having higher debt interest. Paying off debt will be the best idea to enjoy your Christmas holidays with free set of mind. 

Pay the extra mortgage:

If you pay the extra amount on mortgage of your property that you have you can save a good amount of money for future interest. Paying extra amount on mortgage usually gets credited on the principal amount. By this way you can get the equity of the house as soon as possible. 

Save it for the future:

Save this extra money for the future. If you are having a saving account put this extra money into that account instead of keeping it in current account. Doing this you can get increased amount of interest. Keeping some reserved money can be handy when you or your family may come under any emergency. If there is any sort of financial crunch, this amount will be beneficial for that purpose. 

Spend wisely on repair and upgrades:

If you are planning to repair the engine of your car this is the right time to do it. Also you can upgrade your old Harley Davison by this extra amount gained from tax refund. Look into the aspects of any small repairs and maintenance works that you may require to be done for your house or office. Utilize the money and do it. This idea will also save your money for bigger expenses in future.

Above all are the different ways to use your tax refund income wisely. If you follow them, you need not have to be worry for your future. 

What is a Financial Statement?

A financial statement is a formal record of financial activities of a person, business or an entity. It is a financial report which quantifies a company or a person’s financial strength, liquidity and performance.

There are four kinds of financial statements-balance sheet, income statement, cash flow statement and statement of changes in equity.

Balance sheet presents the financial condition of an entity at a specified period. It comprises of three elements: assets, equity and liabilities. The income statement reports the financial performance of a company or a person in terms of net loss or profit over a given time. Also known as profit and loss statement, it comprises of two elements: expense and income. Cash flow statement is the movement in cash and bank balances over a specified time. This movement is classified into different segments like operating activities, financing activities and investing activities. Last but not the least; is the statement of changes in equity, which is also called statement of retained earnings. It details the movement in the equity of the owners over a certain period. This movement is derived from the components like net profit or net loss during a given period as reported in income statement, dividend payments, share capital repaid or issued at that period, losses or gains recognized in equity and effects of change in the accounting policy.

A relevant financial report needs to be presented by every company, person or entity and proactive accountants can help companies and individual clients in preparing these reports. For big corporations, these reports may be a bit complex but professional accounts can present them in a structured way and in an easy to understand form.