ExpertMedium2 marksMultiple Choice
ACCA · Question 26 · Statement of Cash Flows
In preparing a statement of cash flows using the indirect method, a company has a profit before tax of $200,000. During the year, depreciation was $30,000, trade receivables increased by $15,000, inventory decreased by $10,000, and trade payables decreased by $5,000. What is the net cash generated from operations?
In preparing a statement of cash flows using the indirect method, a company has a profit before tax of $200,000. During the year, depreciation was $30,000, trade receivables increased by $15,000, inventory decreased by $10,000, and trade payables decreased by $5,000. What is the net cash generated from operations?
Answer options:
A.
$220,000
B.
$250,000
C.
$180,000
D.
$230,000
How to approach this question
Start with profit before tax. Add back non-cash expenses (depreciation). Adjust for working capital: subtract increases in assets, add decreases in assets, add increases in liabilities, subtract decreases in liabilities.
Full Answer
A.$220,000✓ Correct
Net cash from operations = Profit before tax ($200,000) + Depreciation ($30,000) - Increase in Receivables ($15,000) + Decrease in Inventory ($10,000) - Decrease in Payables ($5,000) = $220,000.
Common mistakes
Getting the signs wrong for working capital adjustments (e.g., adding an increase in receivables).
Practice the full ACCA FA — Financial Accounting Practice Exam 3
65 questions · hints · full answers · grading
More questions from this exam
Q01GlobalWater NGO, a non-governmental organization providing clean water solutions, is preparing it...EasyQ02NexusTech, a cross-border multinational software company, operates in 15 different countries. Why...MediumQ03In the context of a large public utility company, which of the following is strictly the responsi...EasyQ04Quantum AI, a tech startup, is developing a revolutionary algorithm. The directors want to capita...MediumQ05AgriGrow, a large agricultural firm, recently changed its method of depreciating tractors from th...Medium