Comments on: Why does Amortization of patent add to net income? http://1mortgagecalculator.info/why-does-amortization-of-patent-add-to-net-income/ Find out your monthly mortgage payment using this free updated mortgage calculator. Get amoritization tables, bi-weekly savings, refinance info and tips to save money on your home loan. Wed, 14 Sep 2011 21:17:02 +0000 hourly 1 http://wordpress.org/?v=3.2 By: Sandy http://1mortgagecalculator.info/why-does-amortization-of-patent-add-to-net-income/comment-page-1/#comment-3755 Sandy Wed, 01 Jul 2009 18:17:47 +0000 http://1mortgagecalculator.info/why-does-amortization-of-patent-add-to-net-income/#comment-3755 In arriving at net income, you would have deducted amortization of patent since it is a legitmate expense. But this amortization is merely a journal entry which did not involve cash. When preparing the cash flow statement, you want to find out the cash generated from op'g activities, and if your starting point is net income, you'd need to add back amortization of patent. To give a simplified example, let's say you have only 3 items, cash sales, cash COGS, and amortization of patent Cash sales $500,000 less cash COGS ($350,000) Gross profit $150,000 less: Amortization of patent ($50,000) Net income $100,000 For cash flow statement purposes, you start with net income Net income $100,000 add: Amortization of patent $50,000 Cash generated from operations $150,000, which is the figure you want. In arriving at net income, you would have deducted amortization of patent since it is a legitmate expense. But this amortization is merely a journal entry which did not involve cash. When preparing the cash flow statement, you want to find out the cash generated from op’g activities, and if your starting point is net income, you’d need to add back amortization of patent.

To give a simplified example, let’s say you have only 3 items, cash sales, cash COGS, and amortization of patent

Cash sales $500,000
less cash COGS ($350,000)
Gross profit $150,000
less:
Amortization of patent ($50,000)
Net income $100,000

For cash flow statement purposes, you start with net income
Net income $100,000
add:
Amortization of patent $50,000
Cash generated from operations $150,000, which is the figure you want.

]]> By: Scott K http://1mortgagecalculator.info/why-does-amortization-of-patent-add-to-net-income/comment-page-1/#comment-3754 Scott K Mon, 29 Jun 2009 12:42:56 +0000 http://1mortgagecalculator.info/why-does-amortization-of-patent-add-to-net-income/#comment-3754 You are confusing net income with net cash flow. It is an expense, but doesn't affect the cash flow. It's similar to depreciation, bad debt, and other non-cash expenses. You are confusing net income with net cash flow. It is an expense, but doesn’t affect the cash flow. It’s similar to depreciation, bad debt, and other non-cash expenses.

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