ACCA FR · Chapter 14 · Question 1 of 15
When preparing a statement of cash flows using the indirect method, how is an increase in trade receivables during the year treated?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) It is deducted from profit before tax in calculating cash generated from operations
Explanation
Under the indirect method, profit is adjusted for working capital movements. An increase in receivables means some revenue in profit has not yet been received in cash, so the increase is deducted. A decrease in receivables, an increase in payables and a decrease in inventory are added.
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