The following is an extract from a cash flow statement prepared by a trainee accountant. Which of the following criticisms of this extract are correct? 1 Depreciation should have been added, not deducted. 2 Loss on sale of building should have been deducted, not added. 3 Decrease in inventories should have been deducted, not added. 4 Decrease in trade receivables should have been added, not deducted. a) 2 and 3 b) 1 and 3 c) 3 and 4 d) 1 and 4

The following is an extract from a cash flow statement prepared by a trainee accountant. Which of the following criticisms of this extract are correct? 1 Depreciation should have been added, not deducted. 2 Loss on sale of building should have been deducted, not added. 3 Decrease in inventories should have been deducted, not added. 4 Decrease in trade receivables should have been added, not deducted. a) 2 and 3 b) 1 and 3 c) 3 and 4 d) 1 and 4

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The following is an extract from a cash flow statement prepared by a trainee accountant.

Cash flows from operating
activities
Profit before taxation
Adjustments for
Depreciation
Loss on sale of building
Decrease in inventories
Decrease in trade
receivables
Net cash from operating
activities
£000
4,590
(1,430)
690
260
(780)
6,190

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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