How is TATA motors cash and net income impacted by an IT project?

Assume that in July, Tata Motors paid Rs.5 Crores to an external IT consultant for a software project that took 6 months to complete. In July how much would Tata Motors' cash and net income decrease by due to this transaction?
The answer is Cash decreases by Rs. 5 Crores; Net Income decreases by Rs. 83.3 Lakhs.

Why isnt cash accounted for using accrual accounting?

1 Answer(s)


Expensing through accrual applies to the income statement. In the balance sheet accrual does not apply to the cash balance. The cash balance is a 100% accurate representation of the companys cash balance as per the bank statements