Day: October 8, 2024

Part of the process of preparing a sole trader’s cash flow statement is the calculation of cash inflow from operating activities.

Which of the following statements about that calculation (using the indirect method) are correct?

1 Loss on sale of operating non-current assets should be deducted from operating profits.
2 Increase in inventory should be deducted from operating profits.
3 Increase in accounts payable should be added to operating profits.
4 Depreciation charges should be added to operating profits.

Select ONE answer:

1. 1, 2 and 3
2. 1, 2 and 4
3. 1, 3 and 4
4. 2, 3 and 4

Show your workings to arrive at your answer, and explain and justify your reasons:

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………

This multiple-choice question is suitable for Accounting KS5 classes.

The answer is 4

1. Not correct
2. Not correct
3. Not correct
4. Correct – Loss on sale of NCA should be added back to net operating profits.

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