Day: October 9, 2024

In the course of preparing a sole trader’s cash flow statement, the following figures are to be included in the calculation of net cash from operating activities.

Depreciation charges – £980,000
Profit on sale of non-current assets – £40,000
Increase in inventory – £130,000
Decrease in accounts receivables – £100,000
Increase in accounts payable – £80,000

What will the net effect of these items be in the cash flow statement?

Select ONE answer:

1. Addition to operating profit – £890,000
2. Subtraction from operating profit – £890,000
3. Addition to operating profit – £1,070,000
4. Addition to operating profit – £990,000

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 – Add depreciation charge == > Less profit on sale of non-current assets == > Less increase in inventory == > Add decrease in accounts receivables == > Add increase in accounts payable = Addition to operating profit

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