Q: Why is a Due from Shareholder write-off adjusted in the traditional cash flow calculation? Is this because this was a Note Payable outstanding to one of the departing physicians of CMG?
A: The write-off was a non-cash charge, and, therefore, it was removed from the array of expenses that sum to net income in computing traditional cash flow as the sum of net income plus non-cash charges. It likely reflected the write-off of a loan made by the company to an incoming partner or shareholder in accordance with an agreement that such loans would be forgiven – written off – at some point in the future. If the loan were to an unrelated third party, the write-off would be treated the same. It would be added back to net income in computing traditional cash flow.
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