In making investment decisions, cashflowss are considered to be more important than accounting profits. Briefly explain why this is the case.

CPA-Financial-Management-Section-3 Revision kit

Cashflow are considered to be more important than accounting profits because:
• Accounting profits are affected the accounting policies adopted
• There are non cash transactions involved in the determination profits and thereafter they may not be realized for investment purposes.
• The success of an investment depends mainly on cash movements than profits as reported.
• Whereas cashflows can be realized to levels of risk, accounting profits are not directly related to risk.

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