A Compartmental of Cash Flow and Accounting  Profit  Approaches


Table 10.1 shows that the accounting profits amounting to Rs 130 are less than the cash /flow (Rs 430). This difference can be attributed to the depreciation charge of Rs 300. The cash available  with the firm is Rs 430. This can be utilized for further. investment. The accounting approach indicates that only Rs 130 is available and hence gives only a partial picture of the ‘tangible benefits available. Clearly such an approach does not bring out the total benefits of the project available for reinvesting. Therefore in place of earnings, the cash flow information is employed in evaluateing  capital expenditure alternatives.

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