Cash Flow Concern
I’m noticing that my cash flow isn’t aligning with the accumulated depreciation from a disposed asset.
To balance it out, I considered reducing this year’s depreciation by that amount.
Is this approach correct?
Or might there be an error I haven’t identified?
One response
It sounds like you’re trying to reconcile your cash flow and Accounting records after disposing of an asset. Let’s break down the key points:
Accumulated Depreciation: When you dispose of an asset, you also need to account for the accumulated depreciation associated with that asset in your financial records.
Impact on Cash Flow: While accumulated depreciation affects your income statement (through net income), it doesn’t directly impact your cash flow because it’s a non-cash expense. Cash flow statements focus on actual cash transactions.
Adjusting for Disposal: When you dispose of an asset, you should remove the asset’s cost and the related accumulated depreciation from your books. This transaction may create a gain or loss depending on the sale price versus the book value (original cost minus accumulated depreciation).
Regarding your method of adjusting your cash flow by “reducing the depreciation amount of the year,” it’s important to clarify that the depreciation expense for the current year should not be altered simply to achieve a cash flow balance. Instead, you should ensure that your cash flow statement reflects the actual cash inflows and outflows appropriately.
Recommendation:
– Ensure you properly account for the disposed asset in both the balance sheet (removing the asset and its accumulated depreciation) and the cash flow statement (reflecting any cash received from the disposal).
– Review the cash flow statement sections (operating, investing, and financing activities) to ensure all entries are accurately reflected.
If you’re still not balancing after these adjustments, there may be other entries or discrepancies in your cash flow that need to be investigated. Consider consulting with an accountant for detailed guidance specific to your situation.