Question 1

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?

Accepted Answer

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.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Getting the signs wrong for working capital adjustments (e.g., adding an increase in receivables).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 3

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