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On its income statement for a recent year, American Airlines Group, Inc., the parent company of American Airlines, reported a net loss of $1,834 million from operations. On its statement of cash flows, it reported $675 million of cash flows from operating activities. Explain this apparent contradiction between the loss and the positive cash flows.

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Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124

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BuyFindarrow_forward

Financial Accounting

15th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781337272124
Chapter 16, Problem 1E
Textbook Problem
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On its income statement for a recent year, American Airlines Group, Inc., the parent company of American Airlines, reported a net loss of $1,834 million from operations. On its statement of cash flows, it reported $675 million of cash flows from operating activities.

Chapter 16, Problem 1E, On its income statement for a recent year, American Airlines Group, Inc., the parent company of Explain this apparent contradiction between the loss and the positive cash flows.

To determine

Explain apparent contradiction between the loss, and the positive cash flows.

Explanation of Solution

Statement of cash flows: It is one of the financial statement that shows the cash, and cash equivalents of a company for a particular period. It determines the net changes in cash through reporting the sources and uses of cash due to the operating, investing, and financing activities of a company.

Cash flows from operating activities: These refer to the cash received or cash paid in day-to-day operating activities of a company.  In this direct method, cash flow from operating activities is computed by using all cash receipts, and cash payments during the year.

The apparent contradiction between the loss, and the positive cash flows is explained as follows:

With the net loss reported on the income statement some of the items are need to be added in order to convert the net loss which has occurred in accrual basis to the cash basis.

Cash flows from operating activities are as follows:

Incorporation A
Cash Flows from Operating Activities
(Selected from Statement of Cash Flows) (in millions)
Cash flows from operating activities: 

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Chapter 16 Solutions

Financial Accounting
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