transfers should be added back to profits. In case operations show a net loss, such net loss after making adjustments for non-cash items will be shown as an application of cash. Thus, cash from operations is computed on the pattern of computation of "Funds' from operations, as explained in the earlier chapter. However, to find out real cash from operations, adjustments will have to be made for "changes in current assets and current liabilities arising on account of operations, viz., trade debtors, trade creditors, bills receivable, bills payable, etc. For the sake of convenience, computation of cash from operations can be studied by taking two different situations: (1) when all transactions are cash transactions, and (2) when all transactions are not cash transactions, When All Transactions are Cash Transactions. The computation of cash from operations will be very simple in this case. The net profit as shown by the Profit and Loss Account will be taken as the amount of cash from operations as shown in the following example: Example PROFIT AND LOSS ACCOUNT for the year ended 31 December, 1998 Particulars Particulars 7 To Purchases 15.000 By Sales 50.000 To Wages 10.000 To Rent 500 To Stationery 2.500 To Net profit 22.000 50.000 50,000 In the example given above, if all transactions are cash transactions, le., all purchases have been paid for in cash and all sales have been realized in cash, the cash from operations will be 22,000, i.e., the net profit as shown by the Profit and Loss Account. Thus, in case of all transactions being cash transactions, the equation for computing cash from operations can be put as follows: j63 - INCL rront When all transactions are not cash transactions. In the example given above, we have computed cash from operations on the basis that all transactions are cash transactions. It does not really happen in actual practice. The business sells goods on credit. It purchases goods on credit. Certain expenses are always outstanding and some of the incomes are not immediately realized. Under such circumstances, the net profit made by a firm cannot generate equivalent amount of cash. The computation of cash from operations in such a situation can be done conveniently if it is done in two stages: (1) Computation of funds (i.e., working capital) from operations as explained in the preceding chapter, and (ii) Adjustments in the funds so calculated for changes in the current assets (excluding cash) and current liabilities. We are giving below an illustration for computing "Funds' from operations. However, since there are no credit transactions, hence the amount of Funds' from operations is as a matter of cash from operations as shown in the illustration. Illustration 12.1. TRADING AND PROFT AND LOSS ACCOUNT for the year ended 31 March, 1998 Particulars Particulars To Purchases 20.000 By Sales 30.000 To Wages 5.000 To Gross Profit cd 5.000 30.000 30,000 To Salaries 1.000 By Gross Profit bid 5.000 To Rent 1.000 By Profit on sale of building: To Depreciation on Plant 1.000 Book value 10,000 To Loss on sale of Furniture 500 Sold for 15.000 5.000 To Goodwill written off 1.000 To Net Profit 5.500 10.000 10.000 Calculate the Cash from Operations