Increase Productivty

The Cash-Adjusted Income Statement (2)

In a pure cash system, the only way to get anything that might be considered an asset is to buy it for cash, and the only way to reduce a debt is to pay it off in cash. The only way to decrease net worth is to pay it out as a dividend or lose it through a negative net-profit
figure. The consequence of such direct-cash happenings is that all increases in assets and all decreases in either liabilities or net worth between balance-sheet dates necessarily imply
cash outflows. For that reason the cash-flow statement adjusts the related income-statement line from both ends of the time horizon—that is, the starting and ending balance sheets. Note, too, that opposite movements in these balance-sheet items imply cash flowing in so that, for example, a decrease in the asset inventory from one balance sheet to the next implies that cash came in in an amount equal to the excess of inventory use (to meet customer orders) over inventory acquisition.